It was a rather weak bounce attempt to begin with, so an extremely poor close pretty much wiped out today's positives. Breadth was still very slightly positive and the indices had limited gains. Given all the chatter about how negative sentiment has been, it wasn't a very impressive rally, especially with the weak finish.
What is ironic about the market action is that it was logical to look for downside momentum to build after yesterday's poor day, but everyone knows that logic doesn't work in this market. So they looked for a bounce instead, but it wasn't big enough to provide much opportunity. The contrary action was so well anticipated that it never had much chance to develop.
Even if you do have a feel for the action, this is an extremely difficult market to trade. We are not seeing much momentum in either direction, which means you either flip for pennies or stand aside. Probably the best returns recently have come from catching bounces in badly broken stocks, primarily in the oil and commodity sectors. Timing has been the problem there, but there has been good movement for those who are vigilant.
The poor close today is going to give the bears ammunition. The optimists will tell us that the indices held up, but if you aren't at least a little concerned about bids disappearing, you haven't been watching the action closely. The underlying action continues to be a major problem, and it is becoming more difficult for the indices to ignore it.
I'm finding very few setups and that is keeping me more cautious than I'd like to be. It isn't possible to put money to work with any real confidence.
Have a good evening. I'll see you tomorrow.
Dec. 10, 2015 | 1:37 PM EST
Blocked by Contrarian Buzzkill
- Anticipation anxiety is making trading this market more difficult.
The main comment I'm seeing from traders today is that it is so negative that we are likely to see a bounce soon. The high put/call readings are attracting attention and even the sentiment polls are showing more bears than bulls. Of course, when the contrarian view becomes the dominant view, you have to wonder if it can work. The fact that there is so much talk about the contrarian position should worry the contrarians.
We are seeing a few upside attempts but the market has not been able to gain any real traction. Breadth is still running positive as we have bounce in biotechnology, retail and chips. Oil is losing steam again and precious metals are struggling. The big-cap momentum names are mostly up but lackluster.
As I indicated this morning, I've been positioning for some upside but the contrarian buzz is preventing us from seeing a better setup for a spike. Too many people are already anticipating an oversold bounce and that is keeping it from fully developing.
Anticipation anxiety is a very common theme in this market and is one of the things that make trading more difficult. If we do start to make higher highs, it will suck in chasers, but I'm not sure how hard they will be willing to push under these conditions.
Facebook (FB), GoDaddy (GDDY) and Second Sight Medical Products (EYES) are on my watch list.
Dec. 10, 2015 | 10:29 AM EST
Slow, Dreary Action With No Quality Leadership
- I'm disappointed that it is so difficult to do much trading.
The indices are slightly positive and breadth is running in the green, but it is slow and dreary again with no quality leadership. The optimists tell us that the market is holding up but from a trading standpoint, it is dead. The few pockets of action that do exist are random and have questionable momentum.
My thesis is that the longer this goes on, the better the chances of an upward spike in big-cap names like Facebook (FB) and Alphabet (GOOG, GOOGL). I'm seeing interest in Twitter (TWTR) and Chipotle (CMG), which is a reflection of a focus on bottom fishing rather than momentum chasing. That isn't a big surprise since momentum isn't working very well.
I'm disappointed that it is so difficult to do much. Nymox Pharmaceutical (NYMX), which is a Shark Technical Buy today, is shaping up, and GoDaddy (GDDY), my stock of the week, looks OK, but putting money to work is as tough now as it has been all year.
We are lurking around the lows of the day and breadth has moved to flat. A washout would be preferable, but the market refuses because it would make it easier.
Dec. 10, 2015 | 6:50 AM EST
There's a Long List of Market Negatives
- The bears are sure the day of reckoning is approaching.
"Murky thoughts, like murky waters, can serve two purposes only: to hide what lies beneath, which is our ignorance, or to make the shallow seem deep."
The indices are still holding near some key levels of support, but they are under pressure and the recent action is taking a toll. Most of the action is simply the indices better reflecting what has been going on in the broader market for a while, but it is causing a shift in sentiment and making the bulls a bit nervous.
The list of market negatives is very long and obvious right now. We have the struggling oil and commodities, continued economic weakness around the world, increased worries about terrorism and a Fed that looks ready to hike interest rates. The bears are also warning us about valuation (again) and are increasingly convinced that we are fast approach the day of reckoning they have been anticipating for many years.
The positive case for the market isn't quite as compelling. We have seasonality and a whole bunch of performance anxiety to drive things, but the tail wind of central bankers just isn't what it once was. The charts have been holding up fairly well in some cases, which is keeping the perma-bulls hopeful, but I'm hearing more and more from the bulls that the big driver now is that pessimism is accelerated and that it may be time for some contrary thinking.
Trying to time the market using sentiment as a contrary indicator is nearly impossible to do with any precision, but we do need to keep an eye on that issue. The strength in the indices has kept sentiment elevated for a while, but there are now some cracks appearing and the mood, especially yesterday, is turning a bit gloomy.
Another factor to keep in mind is that the computer algorithms love to manipulate the market just as emotions start to build. We consistently see strong reversals just when we are on the brink of gaining some strong downward momentum. It has been the nature of the market for years to punish those who take defensive action following some poor days, and with end of year conditions in place it could easily happen again.
One of the most difficult aspects of the market right now is how poor the action is under the surface. Yesterday we saw some "junk off the bottom" bounces as oil, commodities and other broken sectors enjoyed an oversold bounce, but it didn't last and the rotation caused some real pain in the momentum names that had been leading. The bulls tell us that support is still holding and there is no reason to be worried, but another day or two like yesterday will cause some real technical problem.
The biggest dilemma right now is the same one that has plagued market players for much of the year: how you put cash to work? There are very few good technical setups right now, particularly outside the bigger cap names. The market action has been too choppy and random for position trades to work. Some traders are focusing on oversold bounces in broker stocks, but that can be a very dangerous game as the recent drama in Kinder Morgan (KMI) demonstrated.
I believe the best potential for trades will be to look to catch a move in some of the big cap FATMAN ¿ Action Alert PLUS portfolio names Facebook (FB) and Alphabet (GOOGL), Tesla (TSLA), Microsoft (MSFT), Growth Seeker's Amazon.com (AMZN) and Netflix (NFLX) -- names on a market bounce. It is likely that they will continue to be "go-to" names into the end of the year, as there are few other places for money managers to produce relative performance. They may seem a little too obvious, but when there are few choices the obvious can work.
It is a difficult market and there is quite a bit of grumbling out there. We'll just keep plugging away and see what opportunities we can find as conditions evolve.