A Sour End to a Choppy Week

 | Jan 17, 2014 | 4:20 PM EST
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A choppy week ends on a sour note. The market looked like it was in trouble Monday but the bulls pulled off a classic 2013-type reversal Tuesday, then followed through on Wednesday. But profit-taking kicked in Thursday and it picked up steam this afternoon in front of the three-day weekend.

The pattern in 2013 was to keep running after a V-shaped bounce, but the story so far in 2014 is that the indices have done nothing. Luckily, there has been plenty of interesting action in individual stocks but it has been a stock-pickers' market, and if you make a mistake, the market is not bailing you out.

While the indices haven't made much upside progress so far this year, they haven't lost any ground, either. The first real breakdown of the year on Monday turned out to be a great dip-buying opportunity and caught a lot of folks who had taken defensive action by surprise.

The selling today was probably caused in part by hesitance to carry positions over the long weekend and in front of earnings season, which really kicks off on Tuesday. So far, it has not been a very impressive earnings season with disappointments from the likes of Intel (INTC), Best Buy (BBY) and UPS (UPS). It hasn't affected the market too much so far, but if it doesn't improve next week, it is going to present some challenges.

Overall, the market remains in an uptrend and good stock-picking is working, but it is choppy and there is nervousness. As I've said, I don't think the market is going to make it as easy in 2014 as it did in 2013. The conditions that helped to produce such a lopsided market in the past are no longer in place.

Have a great long weekend. I'll see you on Monday.

Jan. 17, 2014 | 10:32 AM EST

Plenty of Reasons to Worry

  • But underlying support is still holding up the action.

The bears have a slew of negatives to work with this morning, but underlying support is still holding up the action. Bad news from Intel (INTC), Best Buy (BBY) and UPS (UPS), as well as weak housing and sentiment reports, gives the pessimists plenty of ammunition. Throw in Helene Meisler's put/call indicator, and there are plenty of reasons to worry.

Despite that long list of negatives, the price action still isn't bad. Breadth is running 2,200 gainers to 2,800 losers and there's mixed action in big-caps, but dip-buyers are lurking, trying to find action. My favorite group, solar energy, has cooled but biotechnology remains busy with speculative traders.

I'm still looking for new buys and may use this pause in solar energy to build up positions in Trina Solar (TSL) and Real Good Solar (RSOL). I built up JinkoSolar (JKS) yesterday on the secondary offering and that remains my short-term favorite in the group.

Camtek (CAMT), Relypsa (RLYP) and China Finance Online (JRJC), which I mentioned recently, are following through nicely. A few things I'm holding are pulling back so I'm going to tighten up stops, but after the fake-out and quick bounce earlier this week I'm not going to be too fast to dump. If the close is weak, I will lighten up, but the indices are already bouncing and the dip-buyers are doing a good job.

At the time of publication, Rev Shark was long TSL, RSOL, JKS, CAMT,RLYP and JRJC.

Jan. 17, 2014 | 7:41 AM EST

Stick with the Positive Trend

  • The market theme of 2014 continues.

I find my life is a lot easier the lower I keep everyone's expectations. --Calvin from "Calvin and Hobbes" by Bill Waterson.

Expectations were high and Intel (INTC) didn't meet them. So far, the poor report is being treated as company-specific news and is not impacting the indices.

Intel is often a key stock in the market as it supplies chips to a large number of economic sectors, but the shift out of PC and into other devices has made Intel less relevant. The stock ran up quite a bit into its report, so it was set up for a sell-the-news reaction and the market doesn't seem overly concerned with it so far.

Earnings season starts in earnest now, with a flood of reports rolling in starting after the Martin Luther King Day holiday Monday. The big question is whether earnings are going to be a catalyst to keep the market running to the upside or will they be an excuse for profit taking as we enter a seasonally slower period of the year?

Although we enjoyed a very good two-day bounce that took the indices into positive territory for the first time this year, there are signs of chopping-and-churning action. On Thursday, we pulled back and then traded flat most of the day.  The good news is that breadth was positive and there continues to be some good pockets of momentum. In particular, solar energy and biotechnology have been attracting the hot money.

Those pockets of momentum are very important as they help to keep sentiment positive and provide a basis for strong action to spread. Traders are always looking to stay one step ahead of each other so they will keep on digging for new ideas if they feel they are too late to chase some of the other strength that is out there.  Speculative action tends to lead to more speculative action.

The good thing about earnings season is that it tends to keep the focus on individual stock picking. Stocks are going to move on their numbers and that makes the macro matters less important. What is most important during earnings season is developing a feel for the overall market attitude. At times there is a sell-the-news inclination and at other times we have a buy-the-bad-news attitude. It will be interesting to see how forgiving the market is of INTC's mediocre report. I already see one analyst with the standard buying-opportunity defense, but the stock is seeing no bounce so far.

Overall this market continues the 2014 theme of being a good environment for stock picking and active trading. The indices have only minor gains, but there has been a good steady supply of opportunities for traders who focus on finding good stock picks. There are some landmines, like Nu Skin (NUS) and Best Buy (BBY), but the momentum in stocks like the Four Horseman -- YY (YY), Canadian Solar (CSIQ), Yelp (YELP) and Jazz Pharma (JAZZ) -- remain quite impressive. 

Trade with the positive trend until there are good reasons not to.

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