Good Action Under the Surface

 | Jan 22, 2014 | 4:45 PM EST  | Comments
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Stock quotes in this article:

FB

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aapl

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goog

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tsla

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amzn

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ibm

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coh

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txn

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ccih

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himx

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gst

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bita

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xue

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idra

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rsol

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tsl

Once again, the indices didn't do much but it was another good day under the surface. Breadth was perky with nearly 3,500 gainers to 2,100 decliners, which is mainly a function of small-cap leadership. The small-caps and the Nasdaq have been leading lately while the S&P 500 and the DJIA have lagged.

The DJIA is doing a very poor job of indicating what is really going on in this market and it was out of touch again today as it was greatly influenced by the action in just one stock, IBM (IBM). If you are trying to measure the health of this market using the DJIA, you are being misled.

It has been a stock-pickers market and with earnings reports really starting to roll in, it will be even more so. After the close Netflix (NFLX), eBay (EBAY) and F5 Networks (FFIV) are reacting well to their repots, which is nice to see since there have been so few strong reports so far.

Just keep in mind that the indices are a trading range, while many individual stocks are still in strong uptrends. If you understand that and don't get too distracted by the volatility, it makes trading much easier. The market is acting just fine and our job is to keep looking for stocks that are moving.

Have a good evening. I'll see you tomorrow.


Jan. 22, 2014 | 2:05 PM EST

Price Action Tells the Story

  • It's holding up well so far, though the indices aren't running away.

The market can't seem to decide whether it wants to regain momentum and blast higher or roll over and start a long-awaited correction.

The bears are growling about all the lousy earnings reports and the high level of complacency, but traders are busy looking for action. Ultimately, the price action tells the story and, so far, it's holding up well, although the indices aren't running away.

I continue to be pleased at the action in Himax (HIMX), ChinaCache International (CCIH), Trina Solar (TSL), Xueda Education (XUE), JinkoSolar (JKS), InvenSense (INVN) and others. It looks like standard bull market action in many places, and I see no reason not to keep pushing as long as it works.

Too often, market players look for excuses not to like the market rather than find reasons to stay with it. Maybe they feel they have missed out and want the market to pull back because that will allow them to catch up more easily. Quite often, the reason for not celebrating good market action is because we feel like we have missed the boat and don't know how to get back on track.

The key is to be aware of your thinking. While the indices have not been impressive, the action in many individual stocks has been, so that is what we need to focus on. Things will shift, as they always do, but when stock picking is working, that is what we need to do.


Jan. 22, 2014 | 10:45 AM EST

Tricky and Misleading Action

  • Don't let the indices keep you out of good trades.

The action is tricky this morning. The indices are struggling and there have been reversals in Facebook (FB) and Tesla (TSLA). But breadth is still positive and pockets of speculative action remain.

Looking just at the indices, this action is worrisome, but traders are still active and driving small-cap China names, biotechnology and solar energy. It is narrower, but I'm not seeing any fear or worry.

Some stocks I'm trading today are Himax (HIMX), which has been a favorite of several analysts for the year ahead, ChinaCache International (CCIH), which I added to the Sharkfolio yesterday, and Gastar Exploration (GST), which I added today.

Bitauto (BITA), a China auto-related play, continues to chug along and Xueda Education (XUE), a China education play, is trying to breakout. Idera Pharmaceuticals (IDRA) is a biotechnology play that is trying to reverse upward.

The solar plays are bouncing back after a briefing pause and Canadian Solar (CSIQ) in particular is doing well. Relypsa (RSOL) is one in the group that I have been building, and Trina Solar (TSL) looks interesting as well.

The indices can be quite misleading and keep you out of good trades if you let them. Stay focused on the action in individual stocks.


Jan. 22, 2014 | 7:48 AM EST

Don't Worry About the Indices

  • There continue to be some good opportunities out there.

The difference between something good and something great is attention to detail. --Charles R. Swindoll

The most notable characteristic of the market in the first few weeks of 2014 is how little the indices have mattered. Not only have the major indices been flat, but they aren't even moving in tandem as the Nasdaq outperforms while the DJIA lags. If you have been looking for clues as to overall market health, you aren't receiving much help from the indices.

Fortunately, if you dig under the surface things aren't all that bad. We have some big-caps acting well. Facebook (FB) and Apple (AAPL), for example, helped the Nasdaq to outperform yesterday and there are stocks like Google (GOOG), Tesla (TSLA) and Amazon.com (AMZN) that just keep chugging along. 

Probably the best sign of market help is the steady speculative action in small-caps.  We continue to see big movers every day as the hot money shakes the bushes looking for action. This thirst for action keeps a big swell of support under the market and has prevented several weak days from gaining downside momentum.

The market does have some issues. We had an ugly reversal after the gap up yesterday morning and last Monday looked particularly bleak for a while. But in both cases the dip buyers showed up and the market quickly regained its footing.

The bears keep telling us that the stalling action in the indices is a sign that the market is losing steam and is in danger of rolling over. That may well be the case, but we still have no confirmation of that in the form of price action in individual stocks. There are just too many traders still chasing pockets of strength.

Probably the most worrisome thing about this market right now is that so far earnings reports have been quite poor. IBM (IBM), Texas Instruments (TXN) and Coach (COH) are all trading down after reporting overnight. We have yet to see an exceptionally good report, but it is still early.

The best advice I can give you is to stay focused on stock picking and don't worry too much about the indices. As the saying goes, it is a market of stocks rather than a stock market right now. It is all about finding the right setups and managing them well.

There are always some folks who are convinced that disaster is right around the corner. They will be right one of these days, but they miss out on a tremendous amount of opportunities while anticipating the worst. 

There continue to be some good opportunities out there and if we focus on them we can make some money, even if the indices continue to do little.

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