The Streak Is Over

 | Mar 15, 2013 | 4:10 PM EDT
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Although some market players may not agree it was a relief to have the DJIA finally break its longest winning streak in many years. The action has been so slow and steady that it has made trading quite difficult, so anything that shakes things up a bit is welcome.

After the run we've had, the selling today is not only routine but very healthy. Strong markets need to have periodic bouts of profit-taking so that stocks can rotate into new hands with better staying power. Markets with a stair-step pattern typically hold up much better than ones that look like an express elevator.

While there is no question that this has been an extremely strong market, it is becoming increasingly difficult to put new money to work. It is extended on light volume and with little consolidation. That doesn't make for good entry points. Many market players are so frustrated that they buy any sort of pullback no matter how shallow.

The key thing to keep in mind is that even though the action is slow, we have a very strong uptrend and need to stay with the long side until there is good reason not to. I'm going to be digging for new opportunities this weekend and will be ready to jump in as things develop.

Many folks think this market is ready to fall apart, but they have thought that all year. Until there is some solid proof to support that view, I'm going to ignore it.

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

March 15, 2013 | 3:01 PM EDT

Looking for Some 'Action'

  • Maybe now's a good time to check out Michigan-Wisconsin.

It is painfully slow out there and to make it even more unexciting, we have a negative bias for the first time in two weeks. It is actually a relief to see a little selling for a change, but it is so minor that it hasn't created new buying opportunities.

Friday afternoon profit-taking isn't at all surprising, and I suspect the bulls won't be in a big hurry to buy the dip today. If the selling was more aggressive, it might trigger bottom-fishing, but this is just a slow drift and not the sort of pressure that creates a good snapback. Of course, in this market the inclination to buy dips can't be underestimated.

What is most interesting about this market is that quite a few stocks look good but have become extended on light volume. If there's any backing and filling, there will be some great setups, but it is going to take at least a couple of days of flat to down action for charts to develop. I'm working on a watch list I will discuss next week.

There isn't a whole lot to do now, which works out nicely as the Michigan-Wisconsin game gets under way.

Long Michigan

March 15, 2013 | 11:13 AM EDT  

A Needed Breather

  • I'd like to see a red close for a change, if the machines and dip-buyers allow it.

The dip-buyers are reacting slowly to this morning's weakness, which isn't a bad thing as the market could really use a rest. Breadth is running 2200 to 2900 and gold leads while chips and banks lag. Apple (AAPL) is finally bouncing better but most momentum names are pulling back a bit.

In the old days, before the crash of 2008-09, this is the sort of action would help to setup new trades and allow traders to put money back to work after taking some profits. The ebb and flow of the action is what created opportunity and that has been sorely missed in a market that never seems to stop to catch its breath. I'd actually like to see a red close for a change, but the machines and dip-buyers generally aren't patient enough to allow that.

I've made a few small buys this morning. GasLog (GLOG) is a shipper of liquid natural gas. I mentioned it a week or so ago and it hasn't done much, but with natural gas continuing to run up it's a matter of time before that story catches attention. I added to my position today and would add more if it can take out the $13 level on decent volume.

I also remounted Hovnanian (HOV), which had a nice move in December and has been pulling back since then. It seems to have found support and is trying to turn back up. It needs to take out the March highs to bring back the momentum money but I like the way it is shaping up.

March 15, 2013 | 8:21 AM EDT 

A One-Way Ride

  • Traders can't count on the normal market flow of ups and downs anymore.

That which we obtain too easily, we esteem too lightly. --Thomas Paine

Being bullish in a market uptrend may sound like an easy way to make money but there are significant challenges if you really want to profit. It can be extremely difficult to stay fully committed to a market that has been going parabolic, especially when there have been 10 positive days in a row.

Nearly all disciplined traders will take partial profits on winning positions as they become more extended. That is just is common sense, but in a market that gives up every day like this one has, it becomes increasingly difficult to redeploy that capital into new stocks. Ironically, a bullish trader will often find himself becoming less and less invested the longer market strength continues.

In the old days, before the crash of 2008-09, taking partial profits into strength as stocks became more extended was a good strategy. Typically, we'd have some pullbacks or basing action that would allow for new entries. You would be able to redeploy that cash and catch another market surge.

These days the market doesn't seem to operate that way. We don't have that ebb and flow in the action. If you aren't in already you never are given much of a chance unless you are willing to chase. Dip-buyers don't even wait for dips anymore. They will rush in and buy an intraday pullback before we even go negative.

This very lopsided one-way action looks great to the casual observer but it creates a huge amount of frustration for many active trades. I don't need to point out what it does to the bears, but even the bulls who exercise normal prudence and take partial profits end up feeling foolish when the market climbs straight up day after day.

We'll often hear people declare that it is a great market because it is going up every day, but in my mind, a great market is one that has some volatility and allows for aggressive trading. This market is a one-way ride and traders just can't count on the normal flow of ups and downs to give them new opportunities.

Rather than complain about the way the market is acting, we need to find ways to deal with it. To do that, we first need to understand the action and in the current environment. It is obvious that what is going on is V-shaped, lopsided moves. To deal with that we need to be more patient and let your positions run. It may be better to use trailing stops rather than outright sales into strength. The easiest mistake to make in this environment is to sell too early and then watch as a stock keeps going high. My screen in littered with stocks that I have sold prematurely, which isn't normally a problem when I can find new stocks to buy, however, that isn't easy in this market.

Again, the best thing you can do is stick with the strength and not be in any big hurry to call a market top. It will happen sooner or later, and we'll adjust, but we need not focus on it until there is actual price weakness.

We have some slight red in the early going, which has been an invitation for the dip-buyers to do their thing. It is Friday and sometimes that is an invitation for a little profit-taking, but that only happens in normal markets, which this is not.

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