The Bulls Have the Ball

 | Feb 21, 2014 | 4:38 PM EST
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The market only made minor progress this week, but what was most impressive was that it didn't give back any of the recent V-shaped bounce. It churned, and the bears were surprised when the weakness Wednesday abruptly reversed. But overall, it was healthy and boring consolidation after a big run.

While there were pockets of momentum on the Tesla (TSLA) earnings, the Facebook (FB) acquisition and in the biotechnology group, it was fairly quiet. Plenty of bulls are looking for long exposure and they didn't waste time buying the Wednesday dip -- but they weren't gunning us up like the week before.

The big question next week is whether this consolidation is building a foundation for another move higher or whether this is stalling action, which foreshadows more profit-taking in the near term. We don't have many catalysts on the horizon but, as I discussed this morning, this market has been running more on fear of being left behind than on appreciation of great fundamentals. That underlying support doesn't go away easily.

The bulls have the ball and they are still looking to put up more points.

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

Feb. 21, 2014 | 11:09 AM EST

Shaking the Bushes

  • Traders are looking for places to put money to work.

We had a slow but positive start as market players continue to shake the bushes looking for a place to put cash. Breadth is healthy with 3,250 gainers to 1,775 decliners. Biotechnology is leading and we have strength in other speculative groups, such as solar energy and small-caps.

Fear of being left behind continues to drive the strength. There isn't any major macro news -- good or bad -- for traders to focus on, so they keep looking to put money to work so that they don't lag. That is good for stock picking but you have to really dig to find the action.

I've often found that flat markets are best for stock picking as traders tend to gravitate toward a smaller group of more active stocks. If you can identify those early, you can catch a ride as they gain attention.

Organovo (ONVO), on my Best Idea's list, is seeing some action in anticipation of an appearance at a conference next week. Stereotaxis (STXS) is involved in robotic cardiology and reports earnings next week. A few solar names are on my radar including SolarCity (SCTY), SunPower (SPWR) and Daqo New Energy (DQ).

Focus on stock picking, stay selective and be disciplined with your trade management. That is the way to deal with a market like this.

Feb. 21, 2014 | 7:51 AM EST

The Self-Fulfilling Prophecy

  • The fear of missing out trumps the fear of loss.

One does not leave a convivial party before closing time. --Winston Churchill

On Thursday the market wasted no time regaining its footing after a minor correction on Wednesday. Once again, if you were too quick to become defensive you were caught by surprise as sentiment quickly turned positive and upside momentum resumed.

The main dynamic that seems to be at work is that there is plenty of cash looking for a place to go. The big-picture negatives just don't matter much because market players are still anxious to put money to work. Stocks are going up and the market doesn't seem to worry about the negative arguments that the bears come up with, so we might as well just keep on buying.

The hard thing about this market isn't timing it. The hard thing is trying to find good entry points. Markets that go straight down and then straight back up aren't easy, especially when they are up nine out of 10 days and are testing overhead resistance levels. Most folks would be secure in thinking that a bit of a rest would be reasonable and healthy. But the great fear is that we won't rest and if we don't put money to work we will be left out as this market keeps running.

Although we have had high levels of bullish sentiment for much of the last few years, the dynamic that has been driving the market is "climbing the wall of worry." The worry isn't that economic conditions are poor or that stocks are overvalued. The big worry is that this market will keep on running and not let us in.

What happens when a wall of worry is in place is that market players buy not because of a high level of conviction, but because they are fearful they are wrong. The keep inching in, which pushes up the market more and drives them to put more money to work.

The strange dynamic of this market has been that people are buying not because they view things as positive, but because stocks are going up. It doesn't matter why they are going up or that there are good reasons that they shouldn't. They are running and market players hate missing the party.

The fear of missing out trumps the fear of loss, simply because loss has been such a rare thing for so long. We have a few minor corrections along the way, but staying bullish and shrugging off all those very logical and compelling bearish arguments has been the smart move.

One of the things that happens in a market like this is that frustrated folks who haven't been able to put much money to work turn into market timers. It is largely a function of wishful thinking, but they just keep trying to predict that we will see a top soon because that is the only way they will be able to catch up.

We have a quiet, but positive, start this morning as there is little news on the wires. Rather than worry about the big picture, I'm going to keep on looking for individual setups to trade. They aren't easy to find, but it sure beats trying to time this market.

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