Bow to the Buying Pressure

 | Mar 07, 2014 | 4:30 PM EST
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The week started with nervousness over the Russia-Ukraine crisis, but negative news is nothing more than an opportunity to buy in this market. Buying proved to be a very smart move as the indices blasted higher Tuesday when the Russians backed down.

The market continued to march higher Wednesday and Thursday and finally managed very mild profit-taking to end the week. Breadth was slightly negative and we saw some pressure on leading sectors, particularly biotechnology, but it is hard to even call the action "selling."

The most notable feature of this market is this underlying demand for stocks. Despite talk about the high level of margin debt and the claims that there is too much froth, the action smacks of a strong desire to put more money to work.

This market never dips for long, so entry points are not easy, but that is what is producing the strong underlying support. Even on a day like today, it never gained any downside traction as the buying pressure would bubble up on signs of weakness.

Many bulls are desperate for this market to weaken a bit so they don't have to chase the stocks they want to buy. They want the market to go down rather than up, and that creates a dynamic that keeps pushing it higher. It won't last forever, but it is futile to try to predict when it will end.

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

March 07, 2014 | 11:15 AM EST

Profit-Taking Kicks In

  • It's a good day to stand aside and play a little defense.

The gap-up open on slightly better than expected jobs numbers seems to have confused the buyers, who were ready to jump in on a weak report. The dip-buying has worked so consistently that it automatically throws off traders when we don't have one.

The indices have bounced off the early lows and are in positive ground on slightly positive breadth, but there are quite a few flaws in the underlying action. We have had quite a bit of speculative froth recently and now many of those stocks are cooling off. Small-cap China names, biotechnology, 3D printing and even some of the solars are seeing profit-taking.

I can always tell when the market is shifting as the breadth in my watch lists, which is mostly momentum names, will be much worse than the overall market. I don't want to sound overall negative as we really aren't seeing any severe pressure so far, but profit-taking is kicking in. Frankly, correction action is overdue and it would make for a healthier market if the dip-buyers would relent for a little while and let things pull back.

I've taken a few stops on things and made partial sales to lock in gains. I'm looking for entries into new plays and dabbling in Quantum Fuel Systems Technologies Worldwide (QTWW) and FireEye (FEYE). I'll be inclined to do more buying later in the day but I want to see if the bears can finally manage to produce a little pressure. Day lows are the key levels right now. It might be a good day to stand aside and play a little defense.

March 07, 2014 | 9:02 AM EST

Once Again, Respect the Upward Bias

  • The market is trending higher, whether you like it or not.

"Human beings are pattern-seeking animals. It's part of our DNA. That's why conspiracy theories and gods are so popular: we always look for the wider, bigger explanations for things." --Adrian McKinty

Since the market bottom, almost exactly five years ago, one of the most challenging things about the market has been that the action doesn't have the same natural ebb and flow as it did before. The pattern of action changed. It used to be that the market would run and then pull back and rest a bit. We'd even see corrections lasting longer than a day or two. The moves were reflective of human emotions, and they gave traders the ability to greatly outperform by allowing them to move in and out of the market as the indices bounced around.

Over the last few years, the timing of market movement has become a lost art. It has always been difficult trying to call market bottoms and tops, but it became futile in an environment instilled with endless liquidity. The challenge now isn't in timing, but in constantly putting money to work.

What we are faced with now, in other words, is a constant push to rotate from one long position to another in order to produce the best relative strength. Cash is a handicap, and it seldom gives us the strategic advantage it used to do when the market would rise and fall. These days traders have to stay long and gain their edge by juggling positions. You have to buy and hold in general, but you can seek to produce superior results by trying to pick superior stocks.

This dynamic is what has created the constant dip-buying. Traders know they have to stay long in order to outperform, so the easiest way to gain an advantage is to hurry and buy the slightest weakness and stay as long as possible.

The dip-buying phenomenon is particularly important on a day like today, when the market is a bit extended and we are faced with important economic news in the form of the monthly jobs reports. After the recent run-up, you can practically hear the dip buyers champing at the bit as they hope for some negative news that will produce a pullback that they can rush in and buy.

These days the fear isn't bad news. The fear is that there won't be some bad news to produce buyable dips. Good news is chased, and bad news is bought, so the market only goes in one direction.

Most any market player would tell you that it would make sense for the indices to rest at this point. It is just indisputable that stocks should consolidate a bit. However, the way we tend to consolidate now is to keep on running up -- but at a slower pace.

My advice remains: Respect the fact that this market is still trending to the upside. Keep looking for places to put money to work, and don't underestimate the zeal of the dip-buyers. The easy thing to do is to look for reasons to call a market top. The hard thing is to stick with it and keep putting cash to work in stocks that are running.

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