Rally Fatigue

 | Apr 30, 2013 | 4:09 PM EDT
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Not only did the market do a fine job of shrugging off a very poor Chicago Purchasing Managers' report, but the action was even stronger than indicated by the indices. Although the DJIA and S&P 500 were close to flat, breadth was quite good with about 3300 gainers to 2050 decliners, and there more than 400 stocks made new highs. Apple (AAPL) was the star of the day and helped to propel the Nasdaq into the lead.

On the surface, it looks like a bull's dream market, but I've seldom encountered a market at these levels and acting so positive that it causes frustration. Sentiment is nowhere close to the euphoria you might expect when indices are running straight up to new highs, and many buyers act like they are being forced to invest at gunpoint. They really don't want to buy this market but feel they have no choice. News is irrelevant, chart patterns unimportant and entry points illogical. Unfortunately, the worst part of it is that I have been saying essentially the same thing for a while.

In a market like this, it can be very tempting to predict some sort of dramatic event. In my cases, it is just wishful thinking rather than careful analysis by traders who want action. That has worked well at all this year where the vast majority of the time we just plod slowly and steadily higher without a worry in the world.

It is a strange environment, but there is no great mystery about what is happening. It is all about a huge amount of cash and finding a place to put it.

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

April 30, 2013 | 12:40 PM EDT

Things Will Change

  • Keep plugging along and protect your capital.

Once again the market is doing a fine job of ignoring anything that is negative.

The Chicago PMI was unquestionably poor, but in the current environment news like that has no impact because everyone knows the Fed will ride to the rescue with its trusty printing press.

Dip buyers didn't let us stay in the red for very long before they did their thing. The worry isn't that a bounce might fail, but that you won't buy fast enough before we make another high. It is a very odd market environment these days, with a tremendously strong market that can't stay down for very long, but an undercurrent of resentment about a market that acts so unnaturally.

The buy-and-hold folks are happy to see things elevate endlessly, but the trading crowd is confounded by the one-way action in the face of a steady diet of negatives.

I've always taken comfort in the fact that market conditions will change sooner or later. If you are having a hard time navigating the action you just have to be patient and things will shift. Usually they don't shift until you are extremely frustrated and wondering if maybe there is some sort of permanent structural change in the market. We market players are feeling that way right now and patience is wearing thin.  

Just keep on plugging along and make sure you protect your capital. Things will shift and you'll be fine. 

April 30, 2013 | 10:32 AM EDT

Out of Sync

  • I'm struggling to get in tune with this market action.

The action is chaotic as an overbought market and a weak Chicago PMI report battle with end-of-month buying pressure and a better-than-expected consumer confidence number.

The bulls are already arguing that the weak Chicago PMI number is a positive as it keeps the Fed's printing press going. We all know that the only thing that really matters is liquidity, so there is no such thing as bad news as long as the economy is stagnant and there are few signs of inflation.

The biggest positive the bulls have going for them is that the action over the past seven days has created a big supply of underinvested bulls who never had an opportunity to add much long exposure. Charts have not set up well and there was distrust of another V-shaped move.

Like many, I'm struggling to get in tune with this market. It is moving on factors that I can understand but have a hard time embracing. It's already bouncing back as I write, which just goes to show how so many market players are struggling to put money to work.

I added a little to Spanish-language broadcaster Entravision (EVC), which has a great volume pattern the last two months, and is trying to take out overhead resistance at $3.70 to $3.75. I still find it a struggle to put cash to work, but I see no choice but to keep on digging for new ideas while staying selective.

April 30, 2013 | 8:18 AM EDT 

A Matter of Mindset

  • Even if you are disgusted with the market action, don't fight it.

The first step toward change is awareness. The second step is acceptance. --Nathaniel Branden

The market continues to present an annoying dilemma. On one hand, the action is impressively strong. The Nasdaq is up six of the last seven days and is at a new multiyear high. On the other hand, the news flow is mediocre, volume is weak and the mood of the market remains surprisingly sedate. The main reason to buy is simply because the market never seems to go down.

Unlike most markets that are going straight up and making new highs, this one is not generating any real excitement. Buyers are jumping in more out of fear of being left behind than conviction that it is a good time to put money to work.

I've spent quite a bit of time lately discussing the difficulty of cultivating the right mindset for dealing with this market. I never want to fight the market trend, but it is very hard to embrace it when it feels as artificial and manipulated as this. It isn't normally for stocks to go straight back up in V-ish fashion after the breakdown suffered in the first half. Just when it looks like we are in for downside momentum as key technical levels are breached, the market finds support and turns back up. Turning back up isn't all that unusual, but what is so odd is that the reversal is so complete. There is no hesitancy in the bounce and we cut through upside resistance as if it doesn't exist.

Action like that simply is not normal behavior but that makes sense since individuals don't drive the market action these days. The market is primarily driven by computerized strategies designed to put a flood of cheap capital to work. Fundamentals and technicals are irrelevant to the machines, which are simply trying to do their best to obtain even a small return on money that costs them nothing.

The best advice I can give for dealing with this market is to embrace it the best you can. Too many people are trying to fight it and they are costing themselves a lot of money. It is understandable since it is so easy to find good reasons to believe that this market has a weak foundation but they are forgetting the very basic concept of supply and demand. Right now, there is more demand for stocks than supply and that is driving the market higher every day. It may be hard to understand where this demand is coming from but it is unquestionable persistent and is showing no signs of abating.

One of these days, this pattern will shift and the endless bid we are seeing will seem foolish, but wait for the price action to shift before you start to look for downside. Respect that trend and even if you are annoyed and disgusted with the action, don't fight it.

We have a quiet start this morning as talk about European rate cuts are percolating. More cheap money may be on the way soon.

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