We had a pretty good point gain in the indices, breadth was better than 2-to-1 positive and we are well into the downside gap created last Friday morning, but market players were still mumbling about the lack of a Santa Claus rally.
It may not have felt like a holiday party, but this is the sort of move we often see this time of the year. Volume was light and plenty of folks have already concluded the year, but once the bulls gained some traction there wasn't much to stop them from walking us up. There was a small "sell" program in the final minutes, but we closed not far from the highs.
One thing that made the action feel a bit underwhelming was that we didn't have any big movers among the big-caps. The FATMAN names were mixed and the best action I saw in bigger names was Alibaba (BABA).
Among the small-caps it wasn't much different. Typically around holidays, we'll see the hot money go after some junk names, but I didn't see as much as I'd expect on a day with the indices up close to 1%. As volume continues to thin, you can bet there are going to be at least a couple of "hold your nose and buy" plays.
I'm sure the bears were unconvinced by this action and the technical setup is still problematic, but rallies this time of the year are often a self-fulfilling prophecy. So many people are expecting them that they make them happen.
I'm looking for some follow-through before we close for the Christmas holiday at 1 p.m. ET on Thursday, but it is going to require some effort, and a little luck, to find the best stocks.
Dec. 22, 2015 | 2:03 PM ET
Still Waiting for Jolly Old St. Nick
- · Too many buyers are anticipating a rally and preventing much downside.
The indices are up and breadth has improved to better than two to one on the NYSE. Still, the mood is sour and the action feels weak. The FATMAN names -- Facebook (FB), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL) and Netflix (NFLX) -- are mixed and doing very little, although my stock of the week, Alibaba (BABA) is moving well and now facing key resistance at $85.00.
Part of the problem with the market right now is that there are just too many market players, including me, that have been looking for a playable bounce to end the year. There are good, logical reasons for that to occur such as historical seasonality, but we just aren't gaining the right sort of traction.
As I mentioned earlier, we'd probably have a better chance of stronger upside if we had some sort of flush, but there are too many buyers anticipating a rally and they are preventing much downside. Eventually they will become discouraged and give up but right now it is just a miserable trading market and it is going to wear out even the patient.
The best thing that could happen is a poor close and gap-down open tomorrow as traders give up on Santa Claus, but maybe that is just too obvious to work. We'll keep on plugging away and see how things evolve.
Dec. 22, 2015 | 10:43 AM EST
This Market Needs a Hard Shake
- Action lags in 'Junk' and the 'FATMAN.'
What this market really needed to get on track was an ugly gap-down open. Instead, for the second day in a row, we had a half-hearted gap-up that is immediately sold. We aren't going to gain good upside momentum from an open like this. We need the hard shake that attracts dip buyers, which will then put a floor under the action and create the foundation for upside.
Despite the lackluster action we still have a bit of green and breadth is running around flat. Oil is bouncing, which gives the bulls some hope, but it is very mixed. Pockets of momentum are limited. Typically around the holidays, we will see some strong speculative action in some "junk" names but there isn't too much of that at the moment.
The big-cap FATMAN names -- Facebook (FB), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL) and Netflix (NFLX) -- remain mildly positive but there isn't any really aggressive action there. My stock of the week, Alibaba (BABA), is performing as hoped and I'm inclined to look for additional entries.
I'd like to get some small-cap plays going and am looking at Second Sight Medical Products (EYES), Lion Biotechnologies (LBIO) and few others but there just isn't much interest out there right now.
Overall it is disappointing action once again but let's stay watchful and see if things improve.
Dec. 22, 2015 | 7:00 AM EST
At Least One Good, Tradable Bounce Is Ahead
Make sure you are ready to embrace it.
Success is where preparation and opportunity meet.
The obvious trade did not work on Monday, and that unsettled market players that were beginning to anticipate a year-end rally. What traders really wanted on Monday was a sharply lower open that would scare out weak holders and setup a "buy-the-dip" trade.
It is the sort of trade that has worked many times this year, and conditions were good after two days of very poor action and an ugly close on Friday. Unfortunately for the dip-buying bulls, there were far too many folks looking to buy weakness. It worked great going into the Fed news a week ago and it was just too obvious this time.
We gapped up on Monday morning and the buyers had no interest in chasing strength. We wallowed around and the iShares Russell 2000 (IWM) and DJ-30 went briefly negative around mid-day. The buy programs went to work at the close and spiked us back up toward day high and even went a bit crazy after the close, but it ended up being a mixed day that caused some talk that maybe Santa Claus wasn't going to deliver this year.
Despite the strength at the close last night and a slight jump in crude oil prices, opening indications this morning are flat to down and there isn't much excitement. Leaders in China indicated that more stimulus is on the way, which doesn't seem to be inspiring much confidence. The DAX index in Germany is looking poor again, and we have GDP data on tap.
Overall, there just isn't much optimism in the year but, from a contrarian standpoint, that may be a good thing. Struggling money managers have been very hopeful that we'd see some last minute strength to help them rack up some relative performance, but now they are having doubts and that may help to create conditions where we can generate some upside.
The bears, of course, are pointing to the charts of the major indices that look precarious at best. We are testing the lows we hit earlier this month, and the overhead resistance is formidable. A retest of the 2005 level of the S&P 500 or 17,116 of the DJIA looks quite dangerous, but that is keeping sentiment suppressed and holds the seeds for a surprise bounce.
I don't want to sound overly bullish here as this obviously is not a very health market, but conditions favor at least one good tradable bounce into the end of the year, and I want to make sure we are mentally and psychologically ready to embrace it.
My style of trading isn't to predict what is going to happen, but to consider the environment and be ready to react as conditions inevitable shift. If we are well prepared, then we can act quickly when the time is right and take steps to control our risk if things don't work.
If you are a prudent trader, you should have a fair amount of cash on hand already, as this market has likely triggered many stops. The key now is to identify your trading vehicles and watch for conditions to change.
Patience and vigilance are our best weapons right now, and if we use them correctly we should be able to catch a piece of a year-end rally if one does develop.