Yes, It's Artificial

 | Apr 12, 2013 | 4:01 PM EDT
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The bulls had a no-hitter going all week, but lost it this morning when the bears finally managed a couple scratch hits on some poor economic reports. It was still a very lopsided victory for the bulls, but at least the bears managed to maintain a very small amount of self-respect.

The primary theme this week has been "Bad news? We don't care about no stinkin' bad news."

All the economic news has been poor recently, but the bulls are satisfied that the central banks are going to keep the cheap money flowing. This week it was good old boys at the Bank of Japan who churned out a flood of cheap yen. That drive money into dollars and those dollars had no place to go but into stocks.

Virtually everyone agrees that the action is artificial and manipulated, but if you want to make money you have no choice but to embrace it. With earnings season upon us you have to wonder if the reports are going to make any difference or not. Nothing else has mattered to this market, so it may continue to be a win-win situation for the bulls with good earnings driving us further while any bad news is ignored.

It would be nice to have a market that made more sense and moved in a more normal fashion, but above all else we have to pay homage to the price action, which is unquestionably positive.

Have a great weekend and don't forget to check out my weekend column. I'll see you on Monday.

April 12, 2013 | 2:40 PM EDT

Negativity Doesn't Pay

It has consistently been the case for more than three months that these little selling squalls are quickly forgotten. Why would anyone other than some nervous nellies want to sell just because we haven't had a strong economic report in weeks and the market is technically extended? We all know that the Fed and the Bank of Japan still have plenty of ink and will keep on printing, so those negatives are actually positives.

Perhaps I'm being just a little sarcastic, but as a practical matter, it hasn't paid to be too negative too quickly. It really doesn't matter what the bearish arguments are -- until there is a change in the price action, it doesn't make sense to be too negative.

The irony of this action is that we would probably have more bullishness if we had more weakness. The reason so many people hate this market is because they never have an opportunity to put money to work. It isn't the style of many traders to buy stocks at their all-time highs. They want to buy weakness, even if it is just minor. In fact, that is the methodology of most big mutual funds. They keep trying to reduce their cost basis and prefer to buy favorites on pullbacks rather than strength.

It is nice to have a little pause in the action today, but you can still sense the very strong underlying bid. Don't be too quick to assume the top is in.

April 12, 2013 | 10:35 AM EDT

Red Means Relief

  • For the bears and the bulls looking to rest.

We actually have a little red on the screens this morning for the first time in a week. I'm sure this is a relief to bears and many bulls who want the market to rest, but the big danger is being too negative too quickly. The sellers have been consistently burned when they try to press weak action like this.

The economic reports lately have been consistently weak so the inclination to be a bit bearish isn't at all surprising. The only thing that is truly bullish lately is the price action, but ultimately that is all that matters.

I've been unhappy about carrying quite a bit of cash lately, so I have to be careful that I don't let my hope for a pullback drive how I perceive this market. There are many interesting stocks out there, but this market action has not provided much in the way of entries.

A new Shark Technical Buy I added this morning is StealthGas (GASS), a shipper of natural gas. We had good luck with this on a run in February and March. It has rested a bit but is turning back up again. I'd like to see more stocks with patterns like this.

April 12, 2013 | 8:25 AM EDT

Don't Overthink This Market

  • Talk yourself into being a growling bear -- at your own risk.

The more you overthink the less you will understand. --Habeeb Akande

A week ago the market gapped down on weaker than expected jobs news for March. Virtually everyone agreed it was a weak report and a worrisome sign that the economy may be slowing again. The response of market players was to shrug and immediately start buying. The market has gone straight up for five days and continues to have a strong underlying bid.

What is particularly unusual about the market flying straight up as it continues to hit new highs is that sentiment has been consistently negative. We don't have the euphoric emotion that is usually associated with a market that is trading so strongly. What we have are reluctant buyers who feel they have no choice but to hold their noses and keep throwing money at this market.

Most everyone agrees that the primary reason that the market is acting this way is that there is a huge amount of liquidity with no alternative but to go into equities. The recent moves in Japan to drive the yen down is pushing even more cash into U.S. markets as investors look for currency gains, yield and equities with solid fundamentals.

The bears continue to whine about how irrational this market action has been. They have been saying that since this rally began in 1999, so it is tough to take them too seriously. But they do have some valid arguments about fundamentals and the macroeconomic picture. The problem is that liquidity and fear of underperformance by money managers more than offsets the arguments that they so glibly lay out for us.

My biggest problem with this market isn't staying bullish and sticking with the trend. My problem is the lack of the normal ebb and flow that helps set up trading opportunities. Stocks don't move in a way that reflects normal human emotions and that may be because the average person isn't buying and selling, it's computer-driven funds implementing algorithms that put all that idle cash to work.

My advice for investors has been not to overthink this market. You can easily talk yourself into being a growling bear if you focus on all the issues from the massive U.S. debt to the problems in Europe and slowing in China. It is so easy to make a bearish argument you can't help but wonder when we are going to be hit with a real disaster.

Go ahead and be bearish -- but make sure you don't act until there is negative price action to confirm that something is changing. The mistake many folks have made this year is they keep trying to anticipate a turn and it just doesn't happen. As a result, they end up fueling even more upside as they reposition.

I'd like to see some downside set up new opportunities, but just because I want something doesn't mean I should act as it is going to happen. Above all else, respect the price action as the trend continues upward and underlying support remains strong.

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