No Quit in the Indices

 | Apr 24, 2013 | 4:13 PM EDT
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The indices didn't do much today but the refusal to dip was impressive. Breadth was quite strong with 3300 gainers to just 2150 decliners, and pockets of strength included solar energy, refineries and homebuilders. Even stodgy old Microsoft (MSFT) attracted some momentum.

The news flow has not been particularly strong lately. Durable goods numbers were weak and Apple (AAPL) earnings were nothing special. But there is an underlying bid that isn't going away. The first quarter had slow but steady buying, and it looks that way again. Recent weakness is ignored and the big frustration is not having enough long exposure.

I wonder why the bears even bother making fundamental arguments against the market. They should know by now that negatives don't matter as long as there is liquidity and buying power out there. Cash just doesn't have any other place to go.

One of these days we'll have poor action and the bears will tell us they knew it was going to happen, but this game is all about timing and if you are fighting the action, you are paying a price.

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

April 24, 2013 | 2:25 AM EDT

Forget the Big Picture

  • Respect the price action.

This market has plenty of good reasons, both fundamental and technical, to pull back. But we all know that is the ideal condition to bring in more buyers. The indices are mostly flat but breadth on the NYSE is 1850 gainers to 1100 decliners, and there's strong action in oil, gold, chips and solar energy.

One of the things that makes trading this market is the disconnect with sentiment. I noticed today a story on CNBC about ratings hitting a multiyear low and the AAII polls have shown an unusually high level of bearishness as the indices make new multiyear highs.

While many market players are happy to watch the market move ever higher, others can't reconcile the action with the news headlines every day. They stand aside and only become more frustrated as every possible negative is almost immediately forgotten.

My suggestion is to forget the big picture and respect the price action. While that works well, it is difficult for many to act contrary to logic. For years, people have anticipated something dire and they have never been in tune with this action. Action like today's simply confirms that you can't think too hard if you want to make money.

The market is hitting a new intraday high and the bears are being squeezed yet again. There isn't any particularly reason for the strength, but that is often the best excuse to keep on buying.

April 24, 2013 | 11:35 AM EDT

Looking for a Small-Cap Rollover

  • And sooner rather than later.

Despite the poor durable goods report, the mediocre Apple (AAPL) news and mixed earnings reports, the market continues to hold up. The jokes on Twitter about how bad news just takes it higher are becoming more common, but if you try to short this market based on logic you are losing money.

I try not to be anticipatory but I'm watching closely to see if the iShares Russell 2000 (IWM) fails at the 50-day simple moving average. It had a good oversold bounce after the recent breakdown, and it is at a logical overhead resistance point. But the whole concept of "overhead resistance" is hard to take seriously the way this market acts. Nonetheless, I'm inclined to look for a rollover in the small-cap sector sooner rather than later.

I continue to like the trading in the solar sector. First Solar (FSLR) is moving nicely and I added SunPower (SPWR) this morning. Solar module prices rose by 4% in March and that seems to be driving the move. LED light-bulb manufacturer Revolution Lighting Technologies (RVLT) continues to find good momentum but I sold that down a bit.

I'll continue to dig for individual trades on the long side but I keep wondering if this underlying bid is going to dry up as the negative news continues. We always need to respect price action above all else, but that doesn't mean we aren't vigilant and watch for a change in the nature of the action.

At the time of publication, Rev Shark was long SPWR and RVLT, although positions may change at any time.

April 24, 2013 | 8:47 AM EDT

Apple's Evolution Continues

  • The tech giant continues to undergo a transition from growth stock to value play.

The flower that wilted last year is gone. Petals once fallen are fallen forever. Flowers do not return in the spring, rather they are replaced. It is in this difference between returned and replaced that the price of renewal is paid. --Daniel Abraham

There was much hope that Apple (AAPL) might return to its winning ways and ignite the market once again. Instead, it merely confirmed that it continues to undergo the transition from growth stock to value play.

The numbers weren't bad but there isn't any major growth catalyst as competition increases. Analysts cut target prices again, with many now back below $500, and the stock quickly gave up its initial gain.

The good news is that the market didn't need AAPL to rally big since it topped out last September. While it certainly is a headwind due to its heavy weighting in the Nasdaq and Nasdaq-100, there was plenty of strength elsewhere to more than offset its plunge.

AAPL proves a thesis I wrote about in my book, Invest Like a Shark, which is that all stocks have a limited period in which they make their biggest gains. Eventually, the hyper growth and price appreciation ends and if you are looking for exceptional stock gains, you have to look elsewhere.

Anyone who bought AAPL between 2003 and 2005 and held on tightly had a remarkable gain. It is the sort of action that makes people believe in the buy-and-hold approach to investing. However, there always comes a time when the growth slows and a stock becomes more of a value play. It has happened to every great stock in the past, from Xerox (XRX) to Microsoft (MSFT).

Investors who stuck with a stock for a decade and have been greatly rewarded for their devotion are often emotionally involved with their holdings. They are loath to give up on it because loyalty had paid off so well for so long. They convince themselves the stock will eventually make a comeback but they doom themselves to mediocre returns or even losses while they wait. Folks who bought stocks like MSFT and Coca-Cola (KO) have waited for more than a decade for real growth to resume.

I'm sure the folks who are still holding AAPL for the very long term think I'm shortsighted and foolish not to believe in the mighty AAPL. It truly is a remarkable company that has changed the world to some degree. It will continue to be innovative and a leader, but the life cycle of the company is undergoing a change and if you want to produce the sort of returns AAPL provided in the past you have to look elsewhere.

With the drama that is AAPL behind us the big question now is whether the market can keep this V-shaped bounce going once again. Every time I have doubts, it happens again so I'm not too quick to be negative and to anticipate failed bounces.

We've seen some of the most important earnings reports, so the influence of earnings starts to diminish and that will give the bears a bit more of an edge. The last three years the market rolled over as first-quarter earnings ended.

If the market is going to roll over again it is in a place technically where it makes sense. The iShares Russell 2000 (IWM) in particular is right around resistance at the 50-day simple moving average. This is where the bears always seem to get squeezed as the bounce goes V-ish, but it will be interesting to see if the efforts to fade early strength actually work.

I have a few positions but I continue to hold on to quite a bit of cash as I've not put a great deal of money to work lately. I'm respecting the bulls' ability to bounce back but the setups I see just aren't very compelling. I'll keep looking for opportunities but I'm not going to be surprised if we roll back over soon.

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