Boring, But Good Monday After Breaking to New Highs
SUMMARY:
- A boring Monday, but after breaking to new highs, a good Monday.
- Not much news to drive the market and it doesn’t go anywhere.
- Economics upping their outlook for the US economy now that the indices are hitting new highs. The timing is about right and suggests to keep an eye open for a pullback.
- Not much money moving into the market, but with low volumes, it does not take much to move stocks.
- So far another very orderly, easy test with no signs of a more severe rollover.
Market pauses but buyers use the early weakness to slowly accumulate some shares.
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Monday was a rather boring session on Wall Street. More earnings came out, but investors are somewhat immunized from the results at this point in the season. The individual stocks move up and down, but overall they are not pushing the market one way or the other. There was no other economic data out of the U.S.
There was more talk from Europe about whether or not there would be a bond agreement in Greece. Other than Greece coming back later in the session to say it would cut 15K public sector jobs (as a hammer to use against the creditors, I believe), there was not much to move the market. Much of the day was a rehash of the Super Bowl and last Friday’s moves that saw NASDAQ and SP600 break out above their prior bear-market highs. Sometimes, however, boring can be sexy or at least constructive. It is hard to call this action sexy, but in the eyes of a technician, it could have been a bit risqu .
There was a negligible pullback intraday and then a recovery. The intraday chart shows it better. Futures were down before the open, but as the market bell rang, stocks managed to recover. They worked higher in a series of higher pyramids through lunch. They pulled back and tested a bit lower, and then rallied into the close. They never got to positive, but they put a good face on it. Why? This is that low-to-high action that we saw quite frequently (as recently as last week) in the last pullback that the market had before last week’s run. That resulted in the NASDAQ and SP600 breaking to new post-bear market highs.
On most of these sessions, stocks closed off the low. Buyers came back in and popped them back up off of the low using the dips to pick up positions. That is what happened on Monday. There was a dip albeit not much of one and then a recovery back to basically flat as investors used a little pullback to pick up some shares. That continues very healthy action. It may not be sexy, as I said, but it is good action when you have a pullback and stocks are stingy, do not want to give up their gains, and are basically working laterally.
No one wants to sell. I think we are still seeing mutual funds, hedge funds and the like moving in and trying to capture some gains they missed out on last year in that late rally. They also want to take advantage of the big percentage moves when a lot of money is put into the market at the first of the year. That drives stocks to the upside that have been lower or beaten down over the past year as money is pushed their way. You put money into stocks, and prices tend to rise. It is almost a self-fulfilling prophesy. Then they snowball and the gains continue as stocks continue to move higher off of that low. More money is put in, they perform better, and then more money chases that performance. It is a synergistic cycle that helps fuel the upside. Of course you can see the opposite on the downside, but fortunately right now we are seeing it to the upside.
On the day, we saw the indices recover, although they did not manage to turn positive.
SP500, -0.57%; NASDAQ, -0.13%; Dow, -0.13%; SP600, -0.44%; SOX, -1.43%
All in all down; all in all not a bad day. Maybe not sexy, but it sure was a good session for stocks as far as a pullback. As I said a week and a half ago as the market tested, if this is a pullback, it is a very mild pullback. It is one that looks like it will break higher. But there are some other things out the there that we have to consider and I will talk about that shortly.
TUESDAY
We will not have a lot on the calendar. Consumer Credit is out as the market closes. That will not provide too much action tomorrow. The focus will again be on Europe and on earnings in the U.S. There were some more earnings after hours, and there will be more on Tuesday morning.
Thus far, we have a very orderly, easy test with no signs of a rollover. Indeed, we have the opposite indications. Once more, investors were moving back into the market after a lower open. That was characteristic of the trade we have seen the low-to-high action that has shown up as the market has improved in its rally. That is the sign of a healthy market. It moves higher after each dip as money is put to work.
We know there are not a lot of retail investors in the market. They are always late. They have been burned too many times. They do not watch the market. They finally start hearing about the market moving higher and, at first, they do not believe it. Some will never believe it again, and then others finally see that it is showing some staying power and so they move in. About the time that a bunch of them do move in, the move has made its run and it embarks upon a long 4-6 month base. Then they are back in it again. They got in and got hosed once more in the stock market. That is just the way the average retail investor performs. That is why the vast majority of retail investors are better off putting the money in and just waiting.
We are not like that. We have made a lot of money over the last few years while people were out of the market. That is just the way it works. The moves up, the moves down they are not round, but they are coming back. A week and a half ago I commented on the fact that there were more inflows into mutual funds than there had been in a long time. But it was still a very low level, and volumes remain very low. Not that the retail investor controls the volumes. He only does so indirectly. The retail investor comes in through mutual funds and hedge funds, and that is how the volume increases. It is not with a retail investor who has a TD Ameritrade account that is driving up the volume. No. It is the money that the retail investor puts into mutual funds and hedge funds. Their actions are what drive the market.
You may ask why the volume is not high if they are actively making money and the retail investor is not. It is because they are invested. A lot of them have their money put to work. They need more money in order to invest more and ramp that volume up. Once a fund becomes basically fully invested, it does not want to churn because then it loses money on its positions. It, too, has to incur the index fees. It will try to say in a position and not churn it so it can produce those returns. Thus, in order for more volume and trading activity to result there needs to be more funds flowing into those mutual funds so they can put them to work in the market. That is just not the case now, so volume remains light. It is because there is a lack of money in the market overall.
Do not get me wrong, there is money coming in. We are seeing healthy rotation. We are seeing some stocks move higher and hold their gains, and then others start low and move higher as well. But the other stocks are holding their gains; they are not pulling the money out of these stocks and having them fall as investors go and pick other stocks that perhaps are ready to turn and make their move to the upside. For instance, with SONC made its turn to the upside and started to rally nicely. We have seen this in stocks such as KIRK and SONC, and there are many others.
Those stocks that have rallied are still holding their positions while those that are turning back to the upside for the first time and after a long time are rallying. That shows there is still new money coming in. It is not just leaving one area and moving to another area, and when it leaves that one area those prices topple. That is not what is happening. But that also explains why volumes are so low overall. There is not a lot of excess money there, and it is just being pushed around.
What does it mean when there is not much volume? You can move the market quite a bit because there are not that many shares being traded. We are seeing nice upside advance without a whole lot of money being shoved into the market.
Have a great evening!
Jon Johnson
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
