Positive Action, but a Negative Bias

 | Mar 12, 2013 | 4:19 PM EDT
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For the past week or so there has been slow but positive action in the market. It was very slow again today, but this time the action had a negative bias. CNBC could hardly contain its glee over the fact that the DJIA finished positive for the eighth straight day, but it was not very impressive action overall.

Breadth was weak with 2200 gainers vs. 3200 decliners, which isn't terrible but illustrates that there was quite a bit of weakness for a change. What was particularly notable today was quite a few individual stocks were hit and don't come back right away.

One of the dangers on a day like this is that it is very easy to be too negative too fast simply because it might be nice from a trading standpoint to have a little more volatility. I often root for weakness not because I want a downtrend but because it gives us better entry points and better opportunities.

The market certainly deserves a little pause and it wouldn't be hurt if it pulls back even more. It wasn't a great day, but it wasn't bad enough to do any real damage. The bulls still have the advantage, and the bears need to do a lot more work if they hope to seize an edge.

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

Mar 12, 2013 | 2:13 PM EDT

Finally, Some Selling

  • A healthy market needs this after drifting upward for so long.

Minor losses in the indices are covering up aggressive profit taking in a number of stocks. I'm seeing weakness in small-cap favorites like Goldfield (GV), NXP Semiconductor (NXPI) and Biolase (BIOL). Big-caps are also weak in many places, with recent winners like Google (GOOG), LinkedIn (LNKD) and Goldman Sachs (GS) acting poorly. There isn't much technical damage so far but there is broad enough weakness to cause a little pain.

It has been so long since we've had a pullback it isn't all bad that we are finally seeing some selling. We need bouts of selling in a healthy market, especially when it has been drifting upward for so long without any chance to consolidate.

I'm not too concerned about this action and I'll be watching for entries into some of my favorites if they continue to soften. Right now, I'm taking a few stops and cutting a little exposure. I want to see how we close today. Weak closes are always a warning sign and it looks now like we may have one.

March 12, 2013 | 10:40 AM EDT

Itching to Do More

  • The market lacks the aggressive momentum that makes trading at new highs lucrative.

What is most remarkable about this market lately is its consistent pattern of action. Again, it opened with slight weakness but dip-buyers moved in and before you knew it, it was at new highs. The gains in the indices aren't much, but the consistency of the strength is extraordinary.

Although breadth is slightly negative, there are plenty of stocks slowly walking up again. It's not at all easy to trade because it is slow and volume is very light. There isn't the aggressive momentum that usually makes trading at new highs so interesting and lucrative.

I'm trying to get a few things going but it is like pulling teeth. SunPower Corp. (SPWR), a Shark Technical Buy, triggered its buy point this morning and looks good for a test of $13 and recent highs. Santarus (SNTS), my Stock of the Week, is finally turning up, out of its high-level base. Early volume looks OK and that should attract momentum buyers with a new closing high. Meru Networks (MERU) is following through on decent volume and I'm letting some of that run.

I'm itching to do more but it is a tough slog, even with the continued uptrend.

March 12, 2013 | 8:35 AM EDT

Plodding Along to Profit

  • A big reason this market continues to trend steadily is that skeptics remain underinvested.

It's the steady, quiet, plodding ones who win in the lifelong race. --Robert W. Service

Sometimes the hardest thing for traders to do is embrace what is right in front of them. That can be particularly difficult when the market action isn't very exciting or compelling, as has been the case lately.

Traders are always looking to stay a step ahead of everyone else, which results in an inclination to be anticipatory. They want to catch the next big move and in their haste overlook what is happening right now.

The big temptation is to determine when the market will make a top and roll over. It is very difficult to resist making these sorts of predictions, especially when the action is slow and boring. It is far more interesting and exciting to predict that disaster is right around the corner and be ready for it.

While predictions are great for pundits who want attention, they aren't very good at making you money. The way to make money in this market is to embrace the trending action and stick with it as long as possible. The best way to get in trouble is to keep assuming that it can't last any longer. If fact, a big reason this market continues to trend so steadily is that the skeptics of this action remain underinvested.

What has been particularly challenging about the current action is that pockets of momentum have been mixed. There is very little big-cap leadership, although names like LinkedIn (LNKD) and Google (GOOG) have shown some relative strength. There have been defensive names, like McDonald's (MCD) and Johnson & Johnson (JNJ) breaking out, but very few signs of the sort of momentum you usually see when markets are making highs.

Plenty of small-caps are hitting new highs, but leadership has been very random. There isn't any real standout sector, although biotechnology has been producing a bit of action.

The inconsistency in small-caps is a function of the slowness of the market action. Traders want long exposure but are hesitant, which results in both chasing and choppiness. It is very easy to be bullish but find yourself in the wrong stocks. What works best keeps changing and if you are too aggressive, it is easy to get burned.

The way to deal with this market is to continue to stay with the trend. Watch for signs of a topping process. The big mistake is to keep anticipating disaster. The anticipatory bears have been murdered this year and they aren't going to stop now because they are already so buried. At some point, we will turn down again and they will celebrate, but it really won't matter because their losses will be so big that it will take a major crash just to get even.

There's a little softness early but that seems to be a positive lately as it invites dip-buyers and produces a positive daily trend. Keep looking for buys and plug away until there is a good reason not to.



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