You'd be hard pressed to find positive news today, but that doesn't matter much in this market. We started off slowly and then ramped up steadily all day. The constant chatter about more terrorism, mediocre economic news and the fact that the Fed minutes had a hawkish tone provided some fodder for the news media, but it was totally irrelevant to the market action.
Once we started trending upward, there was no choice but to join the party or stand aside. We are at the mercy of the computers and they have a positive bias that is probably a function of the fact that the most logical position would be more bearish. Nothing works better for the computer algos than to catch folks out of position, and we have a lot of that so far this week.
So can we keep on running from here? Everyone is aware that volume is pitiful and that we have a very narrow group making new highs, but they have grown used to extended markets becoming more extended on poor technical action. It seems to be the norm rather than the exception.
There are plenty of compelling reasons to worry about this market, but there is one very big reason not to -- the price action. Ultimately, there is nothing else that matters than price action and it is definitely positive. The fact that so many are skeptical only gives it more momentum.
The potential for a surprise reversal is very high, but the toughest thing right now is to fully embrace this market and ride the trend. That has been the secret to trading success for many years now and continues to be the single thing that works the best.
Have a good evening. I'll see you tomorrow.
Nov. 18, 2015 | 1:17 PM ET
Hard to Get in the Zone
- · I've seldom seen a market that is so uncorrelated with the news flow.
Good traders often find themselves in a mental state of "flow" or "the zone." It is the feeling that you are totally absorbed and in tune with the factors driving the market action.
Perhaps some traders are feeling that way today, but I'm not one of them. From what I'm hearing from others, I'm not alone in that regard. I've seldom seen a market that is so uncorrelated with the news flow. It isn't that we are simply celebrating bad news as good, we are seeing totally random reactions as the computers push us around as they attempt to extract a few pennies in either direction.
One of the keys to good trading is to know when to press and when to hesitate. If you aren't feeling it, you need to acknowledge that fact and work to gain a better understanding of what is going on. My sense now is that we have little trending action as buying is driven mainly by computers. News flow is simply an opportunity to implement a new trading program.
On the surface the action looks generally positive. Breadth is 2-to-1 positive, the FATMAN stocks are leading and there's good sector leadership. There are only 70 or so new highs but the S&P 500 is back above its 200-day simple moving average and the fear of missing out is in the air.
I'm not finding it an easy market to navigate, but it is hard to be too negative.
Nov. 18, 2015 | 10:17 AM EST
The Market Is Trying to Game Emotions
- You can't draw simple logical conclusions because that is what's expected.
There is no shortage of good reasons for why this market should selloff but the bears are simply adding fuel to the upside when they push. Weak housing news, increased terrorist activity and the likelihood the Fed will raise rates despite the anemic economy make for a very compelling bear case, but the market just isn't trading off that news right now.
What the market is really about right now is trying to game emotions. Bad news is good news, good news is good news, and so on and so forth, in endless chains. You can't draw simple logical conclusions because that is what is expected.
The upgrade of Apple (AAPL) by Goldman Sachs is helping the big-cap names today. The FATMAN stocks (FB, AMZN, TSLA, MSFT, (Alphabet) GOOGL, NFLX) are all green and breadth is very solid with 3,500 gainers to 1,580 decliners. Chips and gold are weak while biotechnology, oil and financials are doing well.
I'm not feeling in tune with the action but there is a positive bias right now and it needs to be respected. The bears were caught anticipating another pullback and now they are adding to fuel to the upside along with the bulls that have been chronically underinvested.
I have a few things on my radar but it looks like the big-cap technology names are the place to be. Market players that want to be long and want liquidity aren't much interested in speculative small-caps.
Nov. 18, 2015 | 7:56 AM EST
Seldom Are Emotions as Unclear as Now
- We no longer trade off news flow and obvious emotions.
"Human behavior flows from three main sources: desire, emotion, and knowledge."
-- Plato
The biggest challenge of this market right now is that there isn't any strong correlation between the news flow and the price action. The headlines about substantial attacks by terrorists just aren't moving the market as you might expect. Bad news isn't being treated as bad news. Instead we have a whole other level of price action that is occurring that is based on a number of things than just the latest headlines.
This isn't a totally new development. Over the last six years the combination of central banker action and high frequency and computerized trading has added a level of complexity to the price action. We don't simply trade off news flow and obvious emotions anymore. Instead, there are constant attempts to manipulate the action and to anticipate the psychology. We don't just trade emotions these days, we go two or three levels beyond that.
The action on Monday was a particularly good illustration of this. In the "old days," a major terrorism attack would produce a big gap down open. We'd probably bounce once the initial emotions calmed down, but bad news would be treated as bad news.
In the "new" market, traders look beyond the obvious reactions and try to anticipate what will happen. Since we all know that there were going to be buyers anxious to buy the dip, we don't even wait for the dip to occur. We buy immediately, and that prevents any real weakness from occurring. It makes sense when you dig deeper and start anticipating how the emotions will play, but it becomes so complex eventually that the action is nearly random.
The logic becomes tortured when bad news is good news, because everyone expects it, but because it is so expected it is a contrary indicator. We are so divorced from the fundamental events at a certain point, that they become irrelevant. We are just trying to stay a step ahead of the machines that are looking to manipulate emotions. We may not even have any normal emotions moving this market any more.
That is where we are at this morning, as we grapple with more news about the surprisingly broad terrorism plots in France. In addition, Chinese President Xi Jinping warned that the country's economy is dealing with "considerable downward pressure".
To complicate matters further, it is still widely expected that the Fed will raise interest rates in December, while the ECB will likely try to stimulate the economy further in Europe. We have Fed minutes this afternoon to give us something else to dissect. Commodities continue to probe the lowest prices in six years and the overall news flow is less than stellar.
We are still holding up OK technically, but there is some heavy pressure and it is messy out there. Seldom are emotions as unclear as they are now, and that makes for a very tough market to trade.
At the time of publication, Rev Shark had no positions in the stocks mentioned.