The Dip-Buyers Are the Key

 | Feb 01, 2012 | 9:15 AM EST  | Comments
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 The most essential factor is persistence -- the determination never to allow your energy or enthusiasm to be dampened by the discouragement that must inevitably come.

-- James Whitcomb Riley

We are looking at another strong open this morning as manufacturing reports in Europe and China came in a bit better than expected. In addition, there continues to be hope that Greece really will work out a deal with its creditors in the next few days.

Strong opens typically have not gained further momentum but the underlying strength of this market has been remarkable during the entire month of January. Even if early strength is faded, the dip-buyers have consistently jumped in and managed a decent close. We only saw one day in January -- last Thursday -- that opened weakly and closed weakly.

There is a lot of talk about the good-size gain the market enjoyed in January but the real news was how one-sided the action was. We only saw two days with pullbacks of a half percent or more -- and anytime we saw any weakness at all, the dip-buyers jumped in.

These lopsided, straight up moves have been the hallmark of the market since the lows in 2009, but you can't help but be a bit surprised how they keep on coming. I suspect there are structural changes in the market, especially computerized trading, that is causing this. But I also believe there is "climbing the wall of worry" action occurring as the macro-economic picture has been problematic for so long.

From a trading standpoint, one development I was quite happy to see in January was that the movement in stocks was less correlated and not as sensitive to European headlines. Stock picking worked much better this past month than it did in the latter half of 2011. We still don't have many big themes or obvious leadership but pockets of momentum have been flashing now and then and allowing for more aggressive trading.

Amazon (AMZN) earnings were weak and the ADP jobs news came in below consensus, but we are still looking at a decent open. Again, the dip-buyers are the key. Until they relent, we shouldn't even be thinking about the short side. At some point, the dip-buyers are going to suddenly disappear and we'll see a swift downside move, but there is nothing to indicate that they are ready to give it up at this point.

Watch for the early strength to be sold once again but also watch for strong underlying support to kick in very quickly if the market starts to pull back.

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