Momentum Doesn't Die Easily

 | Feb 24, 2014 | 4:34 PM EST  | Comments
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Stock quotes in this article:

csiq

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spwr

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dq

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kndi

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tsla

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ge

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intc

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xom

The action was downright frenzied at midday but burned off energy and we ended up with a weak close. Many market players were puzzled by what was driving the early strength, but it definitely felt like momentum algorithms focused on running up momentum favorites like Facebook (FB), Tesla (TSLA) and Google (GOOG). It wasn't just the big-cap momentum names that were running. Breadth was extremely strong at midday but cooled to 3,550 gainers to 2,050 decliners by the close.

The bears were crossing their fingers and tossing around the term "blow-off top." Things did feel overheated, but you can't ignore that a ton of money is out there desperate for good entry points. Backing and filling would definitely be a positive now, but the buyers are consistently too impatient for much consolidation to take place.

We have little news flow the next few days, which probably benefits the bulls, who don't need any reason to buy. Momentum does not die easily, especially when so many have been doing so well by embracing it. It won't last forever but, as I wrote this morning, we are better off focusing on what can go right than what can go wrong.

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


Feb. 24, 2014 | 10:40 AM EST

The Chasers Take Charge

  • The bears are unable to take this market down.

Even the bulls seem surprised by the strength of the market today. There is no obvious catalyst, but we're seeing a frenzy of buying and the indices have only strengthened since the open. Recently, breadth on the NYSE came to an amazing 4150 gainers to 1350 decliners, and big-cap strength is what's driving things. Even conservative names such as General Electric (GE), Intel (INTC) and Exxon Mobil (XOM) are acting like momentum stocks.

On days like these, I always find it interesting that I'll hear plenty of talk about how great the market is acting, yet I'll see very little new buying. Obviously if you are holding the right positions you are doing extremely well, but even the bulls don't seem to be too excited about chasing new buys.

I suspect that, when we see action like this, the main buyers are the computer programs that just keep pushing. You can see how lopsided the intraday moves have been: There have been almost no dips or pullbacks. That tells you it's more machines than humans at work.

At this point, there is little to do but to ride the momentum. I have absolutely no desire to try fighting this, nor do I wish to try guessing how much longer it will last. All I know is that the move is amazingly strong, and there are plenty of folks who are struggling to put more money to work.

Keep in mind that markets at their highs don't just suddenly fall apart. So, rather than attempt to predict any market tops, consider that a great deal of people are anxious to find buying opportunities. That's a big part of the reason the market won't let them in easily.

When it comes to this market, over the last few years nothing has been more miserable than trying to make money on the short side when the buyers are in a fervor. Sell and lock in some gains if you are distrustful of the strength -- but don't waste your time, energy or capital trying to predict how much longer this can last.


Feb. 24, 2014 | 10:40 AM EST

The Chasers Take Charge

  • The bears are unable to take this market down.

There is no obvious news to serve as a catalyst but the market is off to a roaring start. I suspect the absence of negative news rather than something positive is driving the buying. The bears are unable to take this market down, so we might as well buy. We likely got an additional boost from chasers who panic-buy as the market looks like it is going to run away without them again.

Breadth is very strong at better than 2-to-1 positive with leadership from old friends biotechnology and solar energy. Gold, oil, drugs and chips are also doing well while steel and regional banks lag.

Again, the big challenge is putting money to work without buying stocks that are overextended. Whether something is extended is obviously a subjective determination, and if you are too conservative making that judgment, you will never get in.

The solar group remains one of my favorites. Canadian Solar (CSIQ) in particular has good news and I'm building that up. Others that I'm holding include SunPower (SPWR) and Daqo New Energy (DQ).

My stock of the week, Kandi Technologies (KNDI), is seeing very good early volume on news that it is going to start leasing its electric cars in major cities in China. It is at the low end of the electric-vehicle market and the company sees continued interest as Tesla (TSLA) makes it push there.

This market is creating a huge amount of underlying support as it goes straight up and that makes entries tough. Dip-buyers are going to prevent downside traction from building unless we get some surprise news.


Feb. 24, 2014 | 8:01 AM EST

It's Pointless to Root Against the Market

  • Focus on what can go right instead of what might go wrong.

"There is little difference in people, but that little difference makes a big difference. The little difference is attitude. The big difference is whether it is positive or negative." --W. Clement Stone

It is very easy to be pessimistic about the stock market. There are plenty of reasons to think that a day of reckoning may be coming soon. However, in many cases that pessimism isn't based on fundamental beliefs. It is rooted in frustration over folks' underinvestment and lack of ability to keep pace with a market that seems never to correct.

Ever since the bottom in March 2009, there have been a multitude of reasons to think that the market would stall out, yet the Federal Reserve's flood of liquidity has keep the indices running along with very few pauses along the way. The bearish arguments have been made over and over again, and they simply don't matter.

Rather than constantly look for reasons that the market is on the brink of disaster, it can be much more profitable to stay focused on what positive developments we could see. This is an attitude that I've seen Jim Cramer take at times when everyone seems to be battling the market, and it is frequently the road to making money. Of course, often this will result in an outcry of protest by those who are rooting against the market.

I've occasionally had a hard time staying with a market that keeps trending higher. I'll want to put money to work, but charts are extended and entry points are tough -- and, if the market pulled back and gave me some less extended buy points, that would certainly make things easier. As a result, I start look for reasons to not like the market. My objectivity is colored by my desire for easier trading.

But if, instead of rooting for the market to fail, I start looking for reasons it won't, I start looking at things differently. Suddenly, more setups that look attractive and I see more potential buys. Yes, something will inevitably go wrong at some point -- but if we think about what can go right instead of what can go wrong, the world looks quite different and we can make far more money in the short term.

Of course, a positive view of things doesn't excuse us from respecting what we're seeing in the market. If stocks start to see softer price action, we need to respond quickly and make sure we don't let losses develop. That said, it is very easy to be overly anticipatory when you are cheering on weakness.

We're seeing some slight Monday morning strength and not much news flow. Earnings season is over, and there aren't a lot of market drivers -- which, perhaps, will give us more of a stock-pickers' market. I'm not finding it easy to put new money to work, but I'm going to stay focused on what can go right.

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