A Strange Mix of Action

 | Jan 03, 2014 | 4:44 PM EST
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Maybe it's a function of the start of the new year but it's a strange mix of action, with mediocre movement in the indices but strong speculative action under the surface. China-related stocks attracted attention from the hot money traders today, but there were a number of pockets of action. Select big-caps also did well, with Twitter (TWTR), FireEye (FEYE) and YY Inc. (YY) leading the charge.

There's plenty of chatter about more buying next week when the "big boys" return to work, but that seems a bit simplistic. On the other hand, the market is consolidating well and setting up nicely for another stab higher.

So far, 2014 has been exactly the sort of trading environment that I've been hoping for, with plenty of good trades making it possible to produce good relative performance. There are issues with the overall market picture and we lose positive seasonality pretty fast, but it has been a nice environment for stock picking and that makes things better.

The hard work starts next week, so rest up this weekend and we'll go get 'em Monday morning.

Jan. 03, 2014 | 10:39 AM EST

Patience and Prudence

  • It's very easy to sell down too fast in this market.

The indices are shrugging off Thursday's weakness and giving us more traditional seasonal strength today. There's good trading action under the surface as traders chase big-cap favorites Twitter (TWTR) and Amazon (AMZN) again and good speculative action in China names, 3D printing, solar energy and a few other groups.

I'm being aggressive with my trading and playing things like 58.com (WUBA), YY Inc. (YY), ChinaCache International (CCIH), Plug Power (PLUG), Ariad Pharmaceuticals (ARIA), Camtek (CAMT), Revolution Lighting Technologies (RVLT) and a few others. I'm making sure I keep stops very tight and I'm quick to book partials when I have decent gains.

One trading issue I need to work on is my tendency to sell too soon. There is an old saying that you won't go broke taking gains too fast, but it is frustrating in a market that has very strong momentum. I try to deal with this inclination by selling my positions in small pieces, but it still can be very easy to sell down too fast, especially if you sell into strength rather than use trailing stops. I'm working on booking gains a little slower and I will try to wait for a turn down, rather than selling into parabolic moves. What works best is always a function of the market environment but, for a while, being more patient on sales has been the best approach.

Jan. 03, 2014 | 8:02 AM EST

Too Soon to Panic

  • The market still has good momentum and positive factors pushing it.

Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible. --St. Francis of Assisi

The first day of the new year produced poor action but should we be concerned that it's an omen? The media like to talk about the correlation between action in early January and annual returns, but it is a meaningless statistical exercise promoted by those who need to fill airtime with ridiculous predictions.

As the calendar makes its annual transition, it's always tricky because so many factors aside from the usual fundamentals and technicals drive the action -- tax planning, asset allocation, new funds for retirement accounts and repositioning just to have a fresh start. Stocks move for many reasons that have nothing to do with their true worth.

The profit-taking we experienced Thursday was not only normal after a good run but was probably a healthy development as the market needed a rest after a vigorous Santa Claus rally. The issue now is whether it consolidates and turns back up as cash inflows come in for the new year. Typically, money is deposited by investors at the start of a new year and is immediately invested, which keeps positive seasonality going for another week or two, but we lose that positive as we head into earnings season.

For now, the market still has good momentum and positive factors pushing it. The selling yesterday was not reflective of a mass exit by market players looking for a major top; it was just routine profit-taking by those who want to lock in gains.

The bears are going to give us the same litany of negatives they gave us last year, but if you learned anything from the action last year, it should be not to be too anticipatory looking for a market top. The bears killed themselves repeatedly with premature calls of a market top the last couple of years. The smart move is to wait for poor price action rather than to anticipate.

I find that the best way to time a market top is to look at what my positions are doing. If they start to act poorly, I cut them and I end up with a high level of cash just as the market starts to roll over more often than not. I have some good action now in Canadian Solar (CSIQ), Plug Power (PLUG) and YY Inc. (YY), so I'm not feeling overly concerned about a major turn here. That can change fast but in the early stages of the new year, aggressive traders are pushing select names to get a jump on relative performance.

Many folks are still on vacation and we have a quiet start again. There is little analyst activity and not much news other than FireEye (FEYE), which is going to lead the momentum charge this morning.

If you stay opportunistic and manage positions closely, you'll do well.



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