Bridging the Leadership Gap

 | Mar 11, 2014 | 4:27 PM EDT  | Comments
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optt

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nwbo

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zu

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dang

For the past week, the market has been holding up quite well but it has not been able to make much progress. Traders were focused on gunning up a bunch of "junk" names, mainly in the fuel-cell sector, while most leading stocks drifted around doing nothing. The bullish view was that it was healthy consolidation after a big run, while the bearish view was that it was stalling behavior and indicative of a topping process.

Today the speculative names reversed sharply and that seemed to trigger broader selling in many stocks that had previously looked OK. The indices didn't sell off that much but many individual stocks broke support levels. Breadth was 2:1 negative and small-caps acted poorly again.

In the bigger scheme of things, the market is still within its uptrend and hasn't suffered enough damage to declare a major change in character, but there are issues. The biggest concern is a lack of good leadership. We've lost the hottest sectors, which were solar energy and biotechnology, and Facebook (FB) is about it for big-cap leadership. There isn't anything attracting the momentum money.

I'm sure the bears are going to point to the recent action in Plug Power (PLUG) and Ballard Power (BLDP) as a sign of speculative excess that marks a market top, but we see that sort of thing all the time without any major market reaction.

The important thing is to keep a close watch on your positions and don't let them slip too much if this action develops into something more severe. It could bounce right back, but I would feel much more optimistic about that if there were at least a few stocks exhibiting exceptional strength. Without good leaders, we are not going to have good sentiment.

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


Mar 11, 2014 | 1:45 PM EDT

Leadership Is Lacking

  • The market is acting poorly and at risk for more profit-taking.

The indices have pulled off a nasty double reverse, trapping bulls who were anticipating renewed momentum. The power-cell stocks, Plug Power (PLUG) in particular, looked to have topped out, and there is news that another Chinese solar company may be on the brink of a debt default. That is hitting solar energy names and a number of China-related issues.

We don't have any panic selling but the reversals are disheartening and pushing traders to the sidelines. Names like Facebook (FB) and Tesla (TSLA) are reversing after a good start this morning.

The market hasn't made much progress for about a week, which should be good enough to consolidate the big February move, but it hasn't been able to attract sustained buying lately. It is definitely holding up, but the lack of forward progress is forcing bouts of profit-taking.

My big concern remains the lack of good leadership. The move in the PLUG group is exactly the sort of speculative stuff that makes the bears proclaim things are overheated and a top is forming. I don't tend to believe in that theory, but there is no question the market is acting poorly and is at risk for more profit-taking.


Mar 11, 2014 | 10:55 AM EDT

Better Momentum Is Needed

  • I am not finding many names that intrigue me.

It is sluggish out there this morning as there is little news flow and no major themes. Breadth is particularly weak on the Nasdaq and the iShares Russell 2000 (IWM) is red for the fifth straight day. The positive spin is that it is just normal, healthy consolidation after the big run since early February. But so far, the buyers aren't showing many signs they ready to start chasing stocks again.

The "power" theme continues with stocks such as Plug Power (PLUG), China BAK Battery (CBAK), Ballard Power (BLDP), Ocean Power Technologies (OPTT), ZBB Energy (ZBB)and a few others being aggressive traded. This is not quality merchandise but it is where the action is – and, since there isn't much else, there are some big movers.

Biotechnology and solar energy have some bounce and there is improved action in big-cap momentum names, including Tesla (TSLA), Twitter (TWTR), Netflix (NFLX) and Apple (AAPL). The market still seems to have good underlying support but it needs better momentum.

I have been mostly a flipper into some good moves in names that include zulily (ZU), La Jolla Pharmaceutical (LJPC), Northwest Biotherapeutics (NWBO) and E-Commerce China Dangdang (DANG). I would like to put some more cash to work but am not finding much that intrigues me so far. As long as the indices hold the early lows, traders are going to keep digging deep for new longs.


March 11, 2014 | 08:08 AM EDT

Stay Focused on Making Money

  • Top-calling has cost too many people too much.

"When the number of factors coming into play in a phenomenological complex is too large scientific method in most cases fails. One need only think of the weather, in which case the prediction even for a few days ahead is impossible." -- Albert Einstein

There isn't much news flow impacting the market right now, and that is giving market participants more time and energy to contemplate whether the market is nearing a top. Recently, we've seen an increase in the number of folks who seem convinced that the market is on the brink of a major turn.

Part of that has to do with the fact that we have just hit the five-year anniversary of the market low in March 2009. It has been a remarkable rally, and it has exhausted many folks who have constantly struggled to keep pace with a market that has often seemed to levitate on air. Many of the folks looking for a top simply want a rest so they can catch up, instead of continuing the frantic hunt to gain relative performance.

Also driving the bearish calls have been such issues as the high level of margin debt and economic softness in China. One recent bearish view was focused on the fact that stock prices continue to rise while overall earnings growth remains quite slow.

As always, there is no shortage of cogent, logical and compelling bearish arguments -- but, as we well know, that sort of thinking hasn't made money for five years now. One of the easiest things to do has been anticipating that the market is about to make a top, and that thinking has created a huge supply of underinvested bulls who are constantly chasing or rushing in to buy shallow pullbacks. The great fear in this market isn't that we might buy the top, but that things will keep running and we will be left behind -- again.

There is no question that billions in profits have been lost by people who have kept fighting this trend that never seems to end. They are encouraged by the market pundits who try to make a name for themselves by being the hero who proclaims the exact moment the market will top out. Of course, these people are never right, yet they keep doing it over and over in hopes that eventually they will be recognized as a genius market timer.

The smart way to play this market is really pretty simple in theory. You find the leading sectors and stocks, and you stick with them for as long as you can. In practice, this isn't all that simple -- but if you tune out the market-timing noise, it becomes much easier.

At some point this market will correct, and correct hard. No one knows exactly what the catalyst will be, nor when it will happen. Still, rather than dwell on this eventuality, we need to stay focused on the present and on what we can do to make money. The prediction game has too many people too much money for too long, and playing it is not the way to deal with this market.

It is very quiet out there this morning. There isn't much news flow, and the major indices are close to flat. There is nothing much on the economic calendar, and no major earnings reports are due for release. Traders are still focused on fuel-cell plays, but perhaps we'll see some other pockets of action develop as well.

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