Earnings to the Rescue?

 | Apr 08, 2013 | 4:22 PM EDT
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The media loves this slow, steady, upward drift of the market but it sure doesn't make for easy trading. It is hard enough putting money to work if you are bullish, but if you are bearish and trying to put on shorts, it is an absolute nightmare.

What makes things so tricky is that there really are no obvious catalysts and no real drama at all. We have the same old bearish arguments that haven't matter in months, but there really isn't anything particularly positive either except for this endless supply of liquidity. We all know about the cheap capital but it just keeps coming in an endless wave and holds the market aloft even when it is mind-numbingly slow.

I'm hoping that in the next few weeks earnings reports will liven things up. Alcoa (AA) kicks off the parade tonight but it is a meaningless report despite the ridiculous chatter about it on CNBC. If it reported a week later, no one would even mention it. In any event, we will have important reports coming soon and they are going to give us a little movement in individual stocks.

Once again, I would like to remind you that anticipatory bearishness is a losing strategy in this market. If you want to make some moves wait for weakness to actually occur and don't try to fight the strength. There will be plenty of time to shift your bias when the action finally undergoes a real change in character.

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

April 08, 2013 | 1:59 PM EDT

Downright Dull Action

  • But you have to wonder if someone will flip a switch and put the machines to work.

It is a trite saying, but on a day like this you can't help but contemplate the old adage "never short a dull market." Volume is light, the indices are down a minor amount and breadth is slipping, but you have to wonder if someone will flip a switch and put the machines to work. When it is this slow it doesn't take much to push the market around, and plenty of traders would be happy to join in if we had better movement.

There is much truth to the saying about how dangerous it is to short when the action is so slow. Traders are geared toward action and they are much more willing to buy rather than sell if there are even minor positives. It is self-fulfilling that buyers will push the market as it becomes more evident that there isn't any real selling interest.

The action is spiking to the highs of the day as the "they can't take them down so we might as well buy them" crowd jumps in. The bears brave enough to short are being forced to cover and all the underinvested longs, like me, have to work hard to put money into play.

It is downright dull, but that favors the bulls.

April 08, 2013 | 10:43 AM EDT

Just Dinking Around

  • I'm inclined to flip rather than build positions.

It is a tough slog in the early going. Breadth is running slightly positive but the major indices are in the red, with the small-caps lagging once again. The selling isn't very aggressive but it offsets the lackluster buying interest.

Most major sectors are in the red, with biotechnology and precious metals the primary laggards. Solar energy has a little life but that is based on very questionable takeover rumors. Google (GOOG) continues to lag but there nothing really stands out among the big-caps.

I'm dinking around with small trades such as Apollo Global Management (APO), Himax (HIMX), Glu Mobile (GLUU) and Genie Energy (GNE), but my cash levels are very high and I'm inclined to flip rather than build positions. There isn't enough energy to be very trusting for very long.

We'll see if the buyers wake up, but my main concern is that the market's drift scares up profit-taking.

April 08, 2013 | 8:27 AM EDT

Ready and Willing to Buy

  • But unable to find good setups.

Theories are patterns without value. What counts is action. --Constantin Brancusi

The market has had a number of good excuses to sell off recently but it continues to battle back and hold above key areas of technical support. Friday was a particular good example of the market's resilience as it traded up all day after gapping down on very poor jobs news. Even the bulls were willing to admit the numbers weren't too hot, but it didn't bother the dip-buyers much as they looked for entry points all day.

The jobs news was not the only weak datum lately but the attitude of the market is that any weakness, regardless of the reason, is a buying opportunity. This is probably a function of the fact that the straight-up action in the first quarter of the year left many money managers underinvested and underperforming. They have had so few opportunities to buy on dips that they don't even wait for a real one before jumping in.

The last couple of years we had similar action but that set us up for a very weak action as the second quarter began. First-quarter earnings season has been a catalyst for sellers the last three years and conditions seem very similar again. We have a big early run-up and then earnings roll in and we start hearing the old adage about how we should "sell in May and go away."

It is very easy to understand why the bears are looking for this pattern to repeat especially given the long list of negatives that we continue to hear about. If you want to draw up a negative argument, it is not hard to do.

While I appreciate of the bearish thesis, there is one thing that this market has proven repeatedly and that is that we should not fight the trend. The way to make money in this market is to stay with the upside as long as possible and not be too bearish too quickly. Anticipatory bears have been on the wrong side of this market on a consistent basis. They may have some good arguments but the market really hasn't cared.

The bears always sound intellectual and astute and that does have appeal but blissful ignorance is often a better trading approach when you are dealing with momentum. Stick with the market until it hits you in the head a few times and catches your attention.

I don't want to sound too sanguine having recently raised quite a bit of cash as many of the small-caps I follow have acted poorly. My trading discipline took me out of a large number of positions and I haven't put much money back to work because I'm not finding many good setups. I'm a ready-and-willing buyer as things develop, but I'm not going to force it -- although I have a bullish bias and am respectful of the fact that the market is still trending to the upside.

Don't forget to check out my weekend column and my Stock of the Week.



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