A One-Way Market

 | May 10, 2013 | 4:15 PM EDT
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What was most notable about the market this week was how it continued to trend higher so effortlessly. It has gone straight up for three weeks and during that time there was only one day of selling and a close at the low. Just one minor selling squall Thursday afternoon was due to chatter that the Fed might not continue its zero interest rate policy forever; other than that, there haven't been any real worries or concerns, and the market just kept chugging along.

Casual market observers tend to think that this must be a fantastic trading environment, but the reality is it is very challenging. It is very easy to sell too early, and finding new entry points becomes more difficult each day as the market just keeps running. Many traders are rooting for some sort of selling pressure just to shake things up and give us new opportunities. But the more they hope for dips to buy, the less they seem to occur. So many folks want to buy weakness that they actually prevent it from happening.

Although I've been complaining about the way this market acts, my suggestion to stick with the trend has been very effective. There is no benefit fighting a market acting in this manner. Pundits may come up with a slew of reasons why disaster awaits, but for now, the only thing that matters is the price action, which is only going in one direction.

We are due for an ugly day sooner or later, but with so many underinvested bulls we can't expect it to last long. It may not seem reasonable that the market can continue to run like this, but many folks have been saying the same thing for weeks. As I've often written, the market has a tendency to go much higher than most people think it can.

Have a great weekend. I'll see you Monday.

May 10, 2013 | 11:01 AM EDT

Just Another Buying Opportunity?

  • Consolidation is long overdue in this upwardly moving market.

The market has quickly forgotten yesterday's Fed worries, soothed by the dulcet tones of Ben Bernanke today. The market is secure that the Fed and its printing press are going to be hanging around for a very long time, so any little dip like yesterday's is just a buying opportunity.

Again, the most notable characteristic of this market is how aggressive the buyers are on very shallow pullbacks. Since we don't ever seem to pull back for more than a few minutes, the buyers rush in even if we are just flat. If you wait for a deeper dive, you will never get in.

There is strong momentum again in Google (GOOG), Tesla (TSLA), Netflix (NFLX) and Priceline (PCLN). YY Inc. (YY), my stock of the week, continues its rampage and I'm all out. SunPower (SPWR), which I mentioned yesterday, has excellent follow-through. The entire solar group is attracting the hot money.

Secondary offerings have not been particularly good to traders lately, but Santarus (SNTS) is doing exceptionally well and I'm looking to add to that position. I have a few others on my radar, like Vertex Pharmaceuticals (VRTX), Walter Energy (WLT) and Novadaq Technologies (NVDQ), but I'm not moving too fast to buy.

The dilemma of the market is that it still has strong upside momentum but is overdue for consolidation. Staying selective with our trades helps to reduce risk, but the bigger problem lately is being underinvested.

At the time of publication, Rev Shark was long SPWR, SNTS, VRTX, WLT and NVDQ, although positions may change at any time.

May 10, 2013 | 7:42 AM EDT

Watch Out for Warning Signs

  • If the market undergoes a major change, it won't happen in a day.

Worry does not empty tomorrow of its sorrow. It empties today of its strength. -- Corrie Ten Boom

Although it was hardly a blip on the charts, we had a slight remainder Thursday afternoon about the importance of the Fed to this market. There was some mumbling about how the Fed may taper off its quantitative-easing program at some point, which resulted in a very quick selloff, as many market players, especially computerized trading programs, immediately react to news of that sort.

Given the run we have had lately, it didn't change the overall technical picture, but it was a good illustration of how sensitive the market is to any action by central banks. The power of central bankers was further confirmed by another big jump in the Japanese market, where the central bank has been on a mission to drive down the yen. The market there has exploded higher as bankers make it clear that they are going to keep the printing presses rolling.

Despite the little blip yesterday, the market remains quite confident that the Fed is not going to withdraw its accommodation anytime soon. When the market is as overbought as this one, however, and so badly in need of some consolidation, any excuse for selling is quickly embraced. 

One of the big ironies of this market is that it is not only the bears who are hoping for some sort of weakness but the bulls as well.  Entry points are becoming increasingly difficult as the lopsided action continues. If you aren't fully invested already, it is very difficult to put cash to work in a prudent fashion.

I notice quite a few comments lately about how risky this market is since it is controlled by central bankers. There is no disputing that at some point there is going to be a major market correction when the central bankers try to reverse some of their current policies, but the big question is whether you should be worrying about that right now?

One of the great things about the market is that you can manage your risk and usually can make a graceful exit as the character of the market starts to shift. Many market players seem to worry that they are going to be caught in a massive collapse and will not have the opportunity to escape before great damage is done. That is extremely unlikely. The market almost always gives us many warnings before it undergoes a major correction.

I suspect more money has been lost worrying about a crash than has actually been lost in a real crash. You may think the market is a house of cards, but that doesn't mean you should forego buying it. Our job is to make money the best we can, and if we sit frozen out of fear of what may eventually occur, we won't do too well.

Personally, I would really like to see a market correction, but rather than hope and anticipate, I try to embrace the price action that I see and try to make some money by trading within the trend. I think the market would be much healthier if it pulled back and consolidated, but that is not a mind-set that is going to produce profits.

It is always a good idea to be cognizant of the arguments for both sides of the market, but you can't let those big-picture views freeze you. You can adapt when conditions change, and when it looks like the market is starting to embrace your view, you can position yourself accordingly.

The key is timing. If the market really is undergoing a major change, it won't happen in just a day. There will be weeks and months for it to play out, so get it while the getting is good and put worries on the back burner until there is some actual price action that shows that the market is about to shift.

Overseas strength is giving us some early green, but the selloff yesterday has stirred up a little caution. The market has been quick to forget its worries, and since we have so many dip-buyers out there, I'm not expecting any major downside follow-through.

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