Gone Bottom-Fishin'

 | May 22, 2013 | 10:38 AM EDT
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Ben Bernanke is saying exactly what the market wants to hear.  The Fed will remain highly accommodative as long as needed, there is no inflation and he even expressed concern about tightening too early. You would think that this policy means that the economy is really bad, but the Fed chief says that real estate has been improving while employment is still struggling. Overall, these comments are exactly what has been driving the market for years and there doesn't seem to be any end in sight.

The buyers have us at another new high and the biggest worry continues to be underinvestment. I am working hard to put more money to work but it isn't easy. I've bottom-fished Walter Energy (WLT), which has had big insider buy recently and is turning higher. A couple of low-priced names of interest include Phoenix New Media (FENG), L&L Energy (LLEN) and Comstock Holding (CHCI).  My Stock of the Week, Revolution Lighting Technologies (RVLT), has had a big seller sitting on it despite good news about the growth of LED lighting. The stock is acting better this morning and I may add if it closes well.

The only possible negative is things are too positive.  Trying to fight this trend continues to be deadly.

May 22, 2013 | 7:57 AM EDT

A Tricky Market to Trade

  • The action is extremely lopsided to the upside and badly in need of a rest.

Are these things really better than the things I already have? Or am I just trained to be dissatisfied with what I have now? --Chuck Palahniuk

Can anything stop this market surge?

For a few minutes yesterday morning, it looked like we might actual crack the prior day's low for only the second time in a month, but that lasted for just a few minutes before the dip buyers jumped in and some comments from a Fed member drove the market to another new high. The only thing that seems capable of stopping this market is comments from the Fed about unwinding of quantitative easing and there doesn't seem to be an inclination to do that. Nothing else matters so we just keep on chugging along.

Many market players would love a good reason to sell and lock in gains. We are obviously extended and in need of some consolidation but the big fear is being left behind as this run continues. There is already a big crowd of grumpy, underinvested bulls on the sidelines who are desperate to find ways to put money to work.

This morning we will have an interesting test of the market's confidence that the Fed will be supportive for a long while to come. Fed chief Ben Bernanke testifies before Congress today and there is going to be great focus on any comments he makes about tapering off the QE program.

No one expects Dr. Bernanke to say anything to spook the market, but it won't take much to produce selling. Many market players would prefer to sell but they aren't going to do so until someone else goes first. Even if we do see pressure on hawkish Fed comments, no one believes it will last long as another Fed member is likely to come along and reassure the market that they will keep interest rates low forever.

I'm sure I don't need to point out how tricky this market is. The action is extremely lopsided to the upside and we are setting new records such as 19 straight positive Tuesdays. Technically, we are badly in need of a rest. Fundamentally, there are plenty of negatives as well, but the only thing that has mattered is central bankers and endless low interest rates.

The feeling of many market players is nothing that can stop this market with the Fed so supportive. They believe, with good justification, that it can run substantially higher as long as conditions remain as they are now. The number of bulls in the media predicting we still have major upside ahead is a little frightening.

Typically, when there is this much confidence, the contrarians will start calling for a top. Unfortunately, they have been doing that for quite a while and have absolutely nothing to show for it. If you are trying to time this market based on extreme action or sentiment, you have been suffering.

I suspect the market may try to find something negative in Bernanke's comments this morning to justify a little consolidation, but there is so much underlying support it won't last long. We have little choice but to stick with the trend until there actually is a change in the character of the action.

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