The action today was almost identical to what we've had for past two weeks. It gapped up a little, which was a bit different, but the buyers held steady and managed another strong finish. It is truly remarkable how consistent this market has been for so long.
If you are a contrarian, talk of how great this market is and how the bears are dead will make you want to load up on the shorts. But there isn't any indication that the market is about to slow down. We just keep climbing that wall of worry and folks feel they have no choice but to keep adding long exposure.
It is one of the oddest market runs in memory as the consistent gains bring more grumbling than celebration. It is a very good illustration of why I often say that trends tend to last far longer than most people think is reasonable.
It will turn eventually, but don't try to anticipate when. Stay with the trend as long as the price action is positive.
Have a good evening. I'll see you tomorrow.
March 14, 2013 | 2:31 PM EDT
How Can a Rally Be so Boring?
- I prefer a dramatic market with wild swings.
I've been trading for many years but I can't remember a time when a rally this strong has been this boring. It just keeps plodding along with hardly any dips or volatility. The bears have been completely chewed up and the bulls are going crazy trying to find more long exposure. With the DJIA now up 10 straight days, it is nearly impossible to find good entry points unless you prefer buying things that are quite extended.
Years ago, I never would have imagined that a market in this position would be so slow and dreary. There is obviously plenty of positive action but it feels like it's just machines trading against each other while the humans stand on the sidelines and watch.
The best way to deal with this exasperating action is to focus on knocking out a good trade in a couple of stocks. Sarepta (SRPT), which I mentioned in my last post is a good example. I'm also intrigued by U.S. Silica Holdings (SLCA), which did a secondary today and has been struggling to hold pricing at $22. For some reason, many of the recent secondaries have not performed well, which makes me wonder if they have been targeted by algorithms. In any case, SLCA has exceptional numbers and has an interesting niche in the fracking business. I think it will come back as it digests this offering.
I'd prefer a more dramatic market with wild swings, but the market beast is doing a fine job of driving everyone crazy with this dull but steady action. Keep in mind that it is more difficult to deal with if you fight it.
March 14, 2013 | 10:57 AM EDT
- Players are forced to inch in out of fear the market will keep running without them.
The market continues to push slowly but steadily higher, though the gap up this morning seems to have confused dip-buyers who are so used to buying minor weakness. Given the recent market action, it seems appropriate that a strong open might lead to a little profit-taking.
We have weakness in key momentum names Google (GOOG), Amazon (AMZN), Netflix (NFLX) and Priceline (PCLN), but CommVault (CVLT) is attracting the hot money and a big target on LinkedIn (LNKD) from Goldman Sachs is keeping that name aloft. Breadth is solid and chips, oil and banks are chugging along.
UBS's Art Cashin basically restated on CNBC this morning what I wrote in my opening post. Market players are "intellectually reluctant" to buy, which is why we have this slow steady rise. They are being forced to slowly inch in out of fear that the market will just keep running without them. That is standard "climb the wall of worry" action and the lack of real excitement about this market confirms it.
I continue to hold positions that are acting well and don't have much new going today. Sarepta (SRPT) is shaping up nicely and gaining momentum as it moves through resistance at $32. One name I'm interested in adding is NXP Semiconductors (NXPI). It did a spot secondary last week at $31.55 and it looks to be digesting that and building a base.
March 14, 2013 | 8:33 AM EDT
Climbing a Perpetual Wall of Worry
- A much different psychology than in the pre-crash days.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. --Bertrand Russell
The plodding consistency of this market might not be good for television ratings or market pundits but it is paying off nicely for market players who ignore the noise and stick with the trend. The folks who write and talk about the market have given the recent winning streak and the new all-time highs plenty of coverage, but the slowness of the action and the lack of intense emotions make it tough to be sensationalistic.
What is so striking and so troubling about the market is how different the emotions are compared to the last time we were at all-time highs. There always seems to be an undercurrent of skepticism about the market. Many dismiss the action as just being a product of central bank manipulation and others are still waiting for the second shoe to drop more than four years after hitting the lows.
The lack of real excitement about the market is what I struggle with more than anything when it comes to understanding the way this market acts. I suspect a big reason for this streaky, one-way action is the many players who never quite embrace this market. They keep inching in as the market trends but keep buying power in reserve, so we never have the sort of blow-off top you see when there is euphoric buying.
It is perpetual "climb the wall of worry" action -- and we are never able to get rid of that worry. This undercurrent of distrust about the economy and the Fed doesn't go away, and so we never have the wholehearted commitment to the market that tends to produce topping action.
Every market has permabears, but in the last few years the group of market pessimists has transformed into something different. Most of these people aren't the doom and gloomers predicting that the market will be cut in half in a worldwide recession. The current bears are more confused than dogmatic. They can't reconcile a painfully slow economy with a stock market that acts as if we have 6% growth and a balanced national budget. They explain the market ramp by pointing at the Fed and its endless printing. How can you be wildly bullish when the things that are driving the market have so little to do with real fundamentals?
I don't know what it will take to remove that undercurrent of skepticism, but the important thing to know is that it helps to feed the market action we are seeing. This slow and very steady rally that doesn't generate any real excitement is a function of skeptics who really don't believe in this market but feel they have no choice but to buy it. They hold their noses and hit the buy button just because they are sick and tired of missing a market that never seems to stop.
It is a much different psychology than in the pre-crash days, but it is what we have to deal with. We have to find a way to navigate this action no matter how irrational it may seem. Staying with the trend is the way to go and until something changes.
We have another quiet start, which has been a good sign lately. I'm going to keep digging for buys until I find a reason not to.