Walking the High-Wire

 | Apr 09, 2013 | 4:26 PM EDT
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Although much of the action was very slow and volume was extremely light again, there was an interesting mix of action. The media was obsessed with JC Penney (JCP), Herbalife (HLF) and Alcoa (AA) while the folks who actually trade for a living were focused on First Solar (FSLR), Sarepta (SRPT) and Netflix (NFLX).

There was strong action to be found but the small-caps underperformed again and that produced negative breadth on the Nasdaq. Solar energy and precious metals were the best groups but there were hot pockets of action, and the action had the feel of desperation by underinvested bulls who are tired of this market running without them.

Once again, the big challenge of this market is that many stocks are extended on light volume but we are seeing few signs of weakness. The bears have been crushed trying to anticipate a top, but on the other hand it is tough for prudent bulls to do major buying.

You have to keep on walking the high wire if you want to make money, but you had better not be scared of heights. Stick with the trend until there is a good reason not to.

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

April 09, 2013 | 1:59 PM EDT

Feels Like Capitulation

  • What choice is there but to join the party?

Today's action has the feel of capitulation. Bears and underinvested bulls are giving up on the idea of fighting this strength and are making buys because they no longer have any choice. They are giving up on the negative scenarios. If a lousy jobs report can't kill this market, why should we think that anything else will be able to? What choice is there but to join the party?

Intraday we are seeing a pattern very similar to yesterday. The market started slowly but when it didn't roll back over and break the early lows the buyers stepped it up, the machines implemented their buy programs and the all- time index highs became the target again. The inability of the bears to create any notable downside pressure is what is triggering the steady buying.

I certainly can understand the frustration of many market players as I'm underinvested myself, although it must be a world of pain for bears who are still trying to catch a top in this market. The only choice I see is to keep on digging for places to put money to work. It has been a mistake to be cautious when nothing negative ever seems to matter. The bears will tell you that is exactly why we should be cautious but they obviously are not navigating this market very well.

April 09, 2013 | 10:44 AM EDT

Lots of Cash Sloshing Around

  • But this isn't an easy environment for aggressive traders.

The slow-but-positive trading continues. It is not an easy environment in which to be aggressive, but positive action continues to suck in traders who are anxious to do something. The feeling is that there is a big amount of cash sloshing around trying to find a place to go and that is keeping a bid under this market, even though upside momentum is extremely slow.

The media is filling air space time talking about JC Penney (JCP), Herbalife (HLF) and Alcoa (AA), which are irrelevant in the bigger scheme of things, but there is so little life in the broad market they have no choice.

Breadth is running slightly negative again and there's no strong leadership, but some bounce in big-cap names Google (GOOG) and Netflix (NFLX) is helping. Precious metals are leading today and gold is starting to attract bottom-fishing.

Small-caps I've mentioned lately such as Sarepta (SRPT), Himax (HIMX), Manitex (MNTX), Apollo Global (APO) and Biolase (BIOL) are doing well. I added a position in Globus Medical (GMED), which is coming out of a nice base. I'm still struggling to put cash to work and I don't expect it to be easier until we have a stronger emotion to move things around.

April 09, 2013 | 8:08 AM EDT

Driven By Fear

  • This market isn't going up because of great fundamentals.

There is little correlation between the circumstances of people's lives and how happy they are. --Dennis Prager

The media always looks for a convenient reason to explain market movement. If it is up, there must be some positive headline to justify the strength. If it is down, there must be something negative pushing people to sell.

While there often is a correlation between news and market movement there are times, like now, when the market is moving for emotional reasons that have nothing to do economics or news.

The primary thing moving this market now is fear of missing out on gains. Poor jobs news is irrelevant, a potential bailout of Portugal has no impact and the long list of negatives that the bears keep whining about are intellectual curiosities that frustrate those who make the mistake of taking them too seriously.

This market isn't going up because of great fundamentals. It is going up because there is plenty of liquidity and great fear of missing out. The negatives, which are glaringly obvious, are irrelevant.

At some point, the market will shift and suddenly the bad news that we have been ignoring will become the very reason it is selling off. The poor jobs news, which we completely shrugged off over the last two days, hasn't gone away but it has been set aside to be used as an excuse when the market finally does correct.

The market's ability not to care about fundamentals is why I keep saying that we need to stay with the trend until there is an actual change in the price action. All the geniuses who keep telling us why the market is doomed miss the simple fact that the market simply doesn't care what they have to say and may continue to ignore them for quite a long time.

What we have to watch for aren't negative headlines but negative headlines that actually impact the price action for longer than a couple of hours. The market will sell off at some point and we'll have a long list of ready-made reasons why. The only difference will be that market players will embrace the negatives rather than ignore them.

The action yesterday was a particularly good illustration of how market players are more focused on price action than headlines. We still had the lingering stench of the poor jobs news from Friday and there were some negatives in Europe and Asia, but when it didn't selloff in the morning there was no choice but to buy because that is what everyone else was doing. It was very slow and boring action but the bulls weren't backing down and the bears had no choice but to give up on their shorts again.

The market hasn't made much progress over the last couple weeks but it is holding up remarkably well as it continues to shrug off everything the bears throw at it. The next big hurdle is earnings but we still have another week before the big, important reports roll in.

Will earnings be the catalyst that finally gives the bears their correction? I don't know, but I'm not going to worry about it until I actually see weak price action.

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