Beyond Explanation

 | Mar 22, 2013 | 4:37 PM EDT
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Once again, the market pulls off a classic "bearish suck in." On Thursday, sentiment had turned down with a couple of failed bounces and a good amount of technical distribution. It looked like a good setup for further selling. But just as the bears started to rub their grubby paws together in anticipation of downside action, the market gapped up the next day and before we knew it, the market recouped the prior day's losses and more.

There was no particularly news to explain the action but the mood suddenly changed and the big worry was not having enough long exposure. Breadth was the reverse of yesterday, but the bears will be sure to point out that volume was down slightly. Overall we suddenly don't have a worry in the world and Cyprus is once again just a nice little vacation spot for Europeans and Russian gangsters.

I keep writing that it is a mistake to be too bearish too quickly and that was proven again today. It just has not paid to take a negative view of this market for longer than a day or two. At this point even bulls would like to see better downside to allow for entries, but that may be exactly why it isn't happening. We never seem to have the sort of giddy excitement that comes as the market becomes extended. Far more common are complaints about not being long enough.

Despite the Cyprus drama, the DJIA was down just 3 points for the week while the other indices lost just minor amounts. The uptrend is still intact, although it did suffer a little minor damage and doesn't have the same momentum it did a few weeks ago.

The moral of the story is stay with those longs until the price action shifts and there's a good reason not to.

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

March 22, 2013 | 2:25 PM EDT

Sunshine and Lollypops

  • Macro concerns are quickly forgotten in this market.

It is truly remarkable how this market can shift its mood so quickly. Yesterday there was worry in the air but today it is sunshine and lollypops. There is no news to account for the difference in sentiment. I suspect that the bulls are used to ignoring negatives and quickly reverting to positive behavior when there isn't anything obvious in the headlines.

What is most notable today is the strength in big-cap names such as Apple (AAPL), Amazon (AMZN), LinkedIn (LNKD) and Priceline (PCLN). The more liquid names haven't done much lately but they are attracting chasers today who want to put cash to work.

I'm having some luck with select small-caps such as Sinclair Broadcast Group (SBGI), Consumer Portfolio Services (CPSS), Insmed (INSM), RF Industries (RFIL), Santarus (SNTS), Goldfield (GV), and a few others. I don't have any major positions but the small stuff is working well.

The key to navigating this market is to have a very opportunistic mindset and not get too caught up trying to predict overall market direction. It is a market for individual stock picking since the macro concerns are so quickly forgotten. The easiest way to underperform is to forego a trade because you are worried about the big picture.

March 22, 2013 | 10:50 AM EDT

A Market Without a Memory

  • One of these days, a negative will matter -- but not today.

The action this morning is a good example of why I've been writing that it's a mistake to be too bearish too quickly. This market has consistently found its footing just when it looks like it is on the verge of breaking down. Suddenly, the shorts have to cover and the bulls, who were hesitating, have to hurry and find new long inventory.

The market seems to forget its recent worries almost immediately. Cyprus? Big deal! Poor earnings reports? Forget about it! Slow economy? Who cares! One of these days, a negative will matter to this market and create downside momentum, but today is not that day.

My plan is to keep trolling for some trades and not get too hung up on overall market direction. There are stocks that are working, like Goldfield (GV), which I've mentioned numerous times, and shippers, which caught some momentum but aren't a place to park a lot of cash.

A couple of names I added this morning include Sinclair Broadcast Group (SBGI) and Consumer Portfolio Services (CPSS). I'm playing everything very tightly and just trying to stay opportunistic as long as the market continues to hold up. I have doubts that the market can add much to the upside but, more importantly, it isn't cracking to the downside either.

At the time of publication, Rev Shark was long GV, SBGI, CPSS, XIN, GV and GSL, although positions may change at any time.

March 22, 2013 | 8:37 AM EDT

The Bulls Haven't Given Up Yet

  • They never seem to have enough long exposure.

Perseverance is not a long race; it is many short races one after the other. --Walter Elliot

It has been a choppy week for the market with the Cyprus crisis doing battle with a friendly Fed. The bears gained a slight edge Thursday with a failed intraday bounce, slightly heavier selling and a poor close. The big issue now is whether they can gain momentum and produce the first real correction of 2013.

I can already hear the bulls scoffing. This market has been stubbornly strong since it bottomed last November. We have had two dips since then and both were quickly overcome just when it looked like the selling was going to accelerate. It has been a mistake to be too negative when the market is at this exact juncture.

What has typically occurred is we find support that squeezes the bears but, more importantly, catches underinvested bulls by surprise and they have to scramble to find long exposure again. The most notable tendency of this market all year is that the bulls never seem to have sufficient long exposure. While sentiment is often positive, it doesn't seem to be reflected in the buying action. We constantly see this slow and steady bid that is reflective of bulls who want in but aren't so positive that they are willing to chase aggressively.

While I'm a bit more cautious, I don't see any reason to be overly negative. The market continues to hold up fairly well and hasn't really tested any key support areas so far. I'll change my mind if the dip-buyers struggle, there are new lower lows and closes are weak. We haven't seen many weak closes this year and that really is the hallmark of a poor market.

What has been most challenging about this market isn't the overall trend but putting money to work. It has been slow action with few pockets of strong momentum. A few odds and ends will pop up but themes such as bulk shippers or 3-D printing are scarce. Big-cap names have no clear leadership and those that have been showing the best relative strength aren't at highs.

Obviously, the poor earnings from FedEx (FDX) and Oracle (ORCL) are a concern and the economic reports haven't been that great, but individual stocks are still holding up and we need to focus on long trades to make money. The key is to stay selective and to manage trades closely. A few small things I've mentioned lately, like Xinyuan Real Estate (XIN), Goldfield (GV) and Global Ship Lease (GSL), have provided some gains, but putting big money to work is tough.

Stay alert and don't be dogmatic. Although my bias is for weak action to shake things up and give us more trading opportunities, I'm not confident that the bulls are ready to give up.

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