It was another positive day but the gains were minimal and volume was downright pitiful. Breadth was better than the indices but this action is becoming more random as traders shut down for the year. I'm still concerned we could see one good bout of profit-taking before we wrap things up, but the dip-buyers are still doing what they always do because it continues to work.
One of the odd things about the market now is the oversupply of talk about the big picture. Everyone wants to offer their opinion about what might happen in 2015 but the action now is very short-term driven and very random. The folks who are active in the market are driven by subjective considerations such as taxes and portfolio performance rather than fundamentals or technicals.
The key is not to be overly aggressive trying to rack up last-minute gains. The market is just too thin and too random to take a high level of risk. We have two more days of this so and it is only going to get more challenging.
Have a good evening. I'll see you tomorrow.
Dec. 29, 2014 | 11:58 AM EST
Reason to Expect Volatility
- One thing we've missed in the last few years is two-sided action.
We are at that time of the year when the media rolls out predictions from market pundits and gurus. I discussed my view of the prediction game this weekend, but I have to admit that some of the guesses are quite entertaining.
What I have found particularly striking about the predictions this year is that they seem to be much more extreme than in the past. Typically, many of the pundits predict that the market will be up 10% or so. They expect just routine gains and nothing very shocking, but this year there are many more predictions of extreme action. Many bulls are predicting a huge stock market bubble and many bears are looking for a massive correction to finally occur.
I have no idea how 2015 will play out, but the increase in dramatic predictions provides a strong foundation for a higher level of volatility. One thing we've missed in the last few years is two-sided action. While we have had five or so corrections this past year, they have all been fairly fast and quite mild. The bears never had much of a chance to dig in for long and we roared back every time.
Obviously, most of the predictions that are being made are a function of biases rather than analytical thinking. Many of the bears have hated the action in this market for a long time. They say it is manipulated and artificial. The bulls shrug off those arguments and tell us that there is just no place else for investors to go and that will continue to be the case for much longer than most people think.
As a trader, I don't much care who is right. All I want to see is some ups and downs along the way. The best thing that could happen is that we have a very ferocious fight between the bulls and bears and that sentiment undergoes some major shifts.
Someone may predict where the market ends up a year from now, but I doubt anyone will accurately predict the twists and turns along the way. I'm just hoping for a good fight to keep things interesting.
December 29, 2014 | 10:22 AM ET
Dip-Buying Trend Continues
- The S&P 500 has not been down three days in a row in 2014.
The dip buyers are quickly jumping on the Monday morning weakness, which is a good illustration of the theme that we have had most of the year. Even when we are technically extended and in need of some consolidation the dip buyers won't wait longer than a few minutes to jump in.
Art Cashin has an interesting statistic this morning. In 2014, the S&P 500 has not been down three days in a row, which is the first time in history that this has occurred. That is probably the single best illustration of how aggressive dip buyers have been this year. As soon as there is some red they immediately start to think about buying.
While this strong inclination toward bounces is quite impressive, it becomes even more surprising when you consider how these bounces turn into V-shaped moves. Not only does the market bounce fast but it just keeps on running -- exactly like we are seeing in the early going today.
The gains aren't huge this morning, but biotechnology is leading again and we have solid breadth. Oil is helping out and we also have some strength in homebuilders and financials.
Trading is thin, which makes it tricky, but I took a position in Idera Pharmaceuticals (IDRA), which is a small-cap biotech stock with a good-looking chart. Alibaba (BABA) is looking better and may finally be receiving some of the end-of-the-year attention many have anticipated. Biotechnology names such as Juno Therapeutics (JUNO), Kite Pharma (KITE), bluebird bio (BLUE), Gilead Sciences (GILD) are leading the momentum trading.
DEC 29, 2014 | 7:12 AM EST
It'll Be a Bit Bumpy
- Keep a trading mentality, not an investing one.
Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us.
With 2014 coming to an end, the main focus of many market players is on predictions for the new year, reflections on the past year and resolutions on how to do better. It is a good time for that sort of thing, as there isn't anything unusual about the market action right now.
The folks in the media are doing their usual celebration of a market that is hitting new highs and there is much derision of the poor bears who, once again, failed to predict the death of the market uptrend.
What we have right now is pretty standard holiday trading. Volume is thin, the mood is positive and stocks are acting in a positive fashion. Many money managers are just looking to coast into the end of the year and if they can tack on a little more relative performance that would be nice, but it is more important not to give anything back right now.
While the mood may feel very sanguine, it can be a big dangerous in the last few days of the year as bouts of profit-taking are fairly common. For a number of reasons there can be a strong inclination to book some gains before the calendar turns over. Quite often, there is a 1% down day as we wrap things up.
While we need to stay vigilant for some selling pressure, there also is a tendency for some pockets of good momentum to emerge. Recently, we have seen the biotechnology group attack quite a bit of momentum and there is also some interest in network security names. Oil is bouncing back on some conflict in Libya, which is going to bring in more bottom-fishing interest.
If you are trading this week, the key is to focus on the small group of stocks that traders are gravitating toward. Typically, in a thinner trading environment traders will create some action as they pursue a few key names. If you can spot the action early you can take it for a ride, but it is important to maintain a trading mindset rather than an investment mindset.
The market trend is clearly to the upside, but that doesn't mean it won't be a bit bumpy. However, many dip buyers will welcome a few pullbacks. This has been the year of buying the dip and V-shaped moves, and that theme is still well in place.
We are looking at a slightly negative start to the day, but market players are moving slowly after the holiday weekend. They will be looking for some action once they wake up, but will be very selective.