After an ugly start the indices slowly recovered, but breadth was still solidly negative. The FATMAN group and Google (GOOGL), Amazon (AMZN) and Facebook (FB) in particular exhibited relative strength. Traders really had no choice but to take refuge in the bigger-caps. (Google and Facebook are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
Usually during the holidays we will have some action in speculative "junk." Traders will create some movement as they try to find some fast-moving small-cap. It can create a festive environment if there is enough of it going on. That wasn't the case today. Small-caps lagged and that was reflected in the nearly 2-to-1 negative breadth. What was worst is that there were very few pockets of momentum and no real meaningful themes.
We did close near the highs of the day, which may help sentiment, but we need to see some speculative energy. Obvious volume is going to be very light this week, but that shouldn't prevent more aggressive trading if confidence increases.
I still see a number of interesting setups. We just need to generate some holiday spirit to get them moving.
Have a good evening. I'll see you tomorrow.
Dec. 28, 2015 | 1:43 PM ET
This Market Action Is Dismal
- · Holiday trading is often a function of self-fulfilling prophecies.
It has been a dismal morning of action, but we are finally seeing some underlying support. Breadth has inched up to about 2-to-1 negative from 4-to-1, and big-cap names such as Amazon (AMZN) and Alphabet (GOOG, GOOGL) are waking up a bit. The biggest problem today has been small-caps, which are suffering for a lack of liquidity. There just aren't many bids.
During the holidays the trading is often a function of self-fulfilling prophecies. Traders will jump in when they see the first signs of positive action and they will chase what others are chasing. It is very short term, but if you can catch something as it starts to develop, it can run. A good example today is Rovi Corp. (ROVI), which I had on my watch list this morning.
If market conditions can continue to improve into the close, I'll be looking for overnight buys -- but I want to see a decent finish today. We need more upbeat sentiment to help produce better holiday trading. Further strength this afternoon may help provide better holiday action for a couple of days.
Dec. 28, 2015 | 10:28 AM EST
The Stock Market Is Swimming in Negatives
- There aren't any positive momentum pockets.
There are just too many negatives out there this morning, and it is pushing the holiday traders to the sidelines.
Poor action in China, weakness again in oil, technical overhead for the indices and the fact that it has been a miserable year for many is preventing upbeat trading that often occurs in the last week of the year.
The biggest problem I see right now is that there simply aren't any positive pockets of momentum for traders that want action.
We have a few little odds and ends, like Disney (DIS), Weight Watchers International (WTW), Rovi (ROVI), FXCM (FXCM), but it is very limited. Breadth is running around four to one negative, and we only have about 30 stocks on the new 12-month high list.
I'm very unimpressed with the trading action and was forced to take some stops. I flipped out of DIS from Friday. I have a few things on my radar, like Smith Wesson (SWHC), but this market isn't doing anything to suggest we are going to see some sustained momentum.
Dec.28, 2015 | 7:20 AM EDT
Stay Focused on Emotions and Psychology
- The biggest problem is some key resistance for the SP 500.
"Order and simplification are the first steps towards mastery of a subject."
--Thomas Mann
Finding order and simplification in the last four days of the year is not as easy as it may sound. There tends to be a positive bias to the market action, but it will be thin and random trading. There are often some surprise dips, like we saw at the close on Christmas Eve, which can turn a blandly positive day into something unattractive.
What makes this week particularly challenging is that neither fundamentals nor technical patterns matter all that much. This is a week driven by tax planning, window dressing, portfolio positioning and mostly subjective considerations.
The key for traders is to stay focused on emotions and psychology. There is an expectation of positive trading action, which helps to create pockets of momentum. Traders know the action will be thin and they will quickly gravitate toward the names that exhibit some early movement.
This is also the week when the "January Effect" tends to come into play. Many market players have recently dumped losing stocks for tax purposes, and now they can rebound as that selling pressure relieves. In 2015, the majority of stocks were losers, so the tax selling may be too broad to help pinpoint the best January Effect bounces, but some should start to develop.
What I find most interesting this morning is the high level of negativity. The view seems to be that the three-day bounce last week was the much-anticipated Santa Claus rally and now that it is finished we will limp into the New Year.
The technical patterns aren't as useful as usual this week. They aren't particularly good. One positive for the bulls is a "Golden Cross", where the 50-day simple moving average crosses above the 200-day simple moving average. This tends to be a short-term positive for some momentum, but in this thin week it is tough to give it much weight.
The biggest problem right now is that the SP 500 has run right into some technical resistance at those two moving averages. We were turned back at that point on Thursday, and the pattern suggests a rollover as we give back some of last week's gains.
I've been looking for the big cap technology names like Action Alerts PLUS portfolio names Facebook (FB) and Alphabet (GOOGL), or Growth Seeker portfolio holding Amazon.com (AMZN), as well as Microsoft (MSFT), Netflix (NFLX), Alibaba (BABA), etc. to attract interest into the end of the year, but that has not been the case so far. There have been some brief flurries of action, but nothing that really stands out. If these stocks don't show some better strength, it is going to be a highly selective trading environment.
The news flow is obviously very thin and the mood not very upbeat after weak action in Asia. Weakness on Monday often attracts dip buyers, but the thin trading is going to make the action hard to trust.
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