Take Your Cues From the Market

 | May 28, 2013 | 4:30 PM EDT
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We ended up with pretty good gains but it was still a bit disappointing after the strong start this morning. The tendency of the market during the recent rally has been start slow and gain strength. This is generally seen as more bullish than the reverse we had today. Nonetheless, breadth was still solid with plenty of new highs and even some crazy momentum, like Tesla (TSLA).

The bears are going to focus on the fact that many stocks closed well off their early highs. It was quite a frothy start and that always brings up talk of "blow-off tops." The bears like that phrase but I can't remember the last time it actually happened. When the market does top, the process plays out over a long period.

One of the easiest things to do in a market like this is to find reasons to be negative rather than positive. After all, we are still technically extended, there isn't any real reason for this strength and there are rumblings that the Fed won't keep interest rates low forever. It is very simple to come up with a bearish thesis but that has been the case for months and it hasn't worked. What has been missing is negative price action. We simply have to wait for the market to act to reflect the fact that it appreciates the negatives. Trying to outthink the market just doesn't pay.

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

May 28, 2013 | 12:38 PM EDT

The Market Ignores Your Emotion

  • It tends to trend much further than what you think's reasonable.

I expect to hear the phrase "blow-off top' several times today.

This market caught some folks leaning the wrong way after the weakness last week and that produced some panic buying this morning. Things have cooled a bit and breadth is down to a bit better than 3-to-1 positive, but I'm not buying the argument that it is so frothy that a top is forming.

The big problem for bears is that this is the sort of action that keeps creating more dip buyers and makes them even more aggressive. The biggest worry of most market players is being underinvested. I am in that boat myself and it is constant struggle trying to put money to work in this market that just doesn't slow down long enough to allow for building positions on pullbacks.

One thing I've written many times is that markets always tend to trend much further than people think is reasonable. The easiest mistake to make is to think that your personal views of what is reasonable are going to be reflected by the market. The market simply doesn't work that way. Once you realize that momentum is not reflective of ordinary human emotions, you can better navigate it.

I have a few things on my watch list for adds into the close and I'm going to keep looking for some new candidates. I'll be very surprised if we close at the lows of the day, but I want to see how we act as the day winds down.

May 28, 2013 | 10:22 AM EDT

Solar Stays Hot

  • A big report from Canadian Solar propels the group.

Opens like this are the reason there are so many dip buyers. The market doesn't provide many easy entry points. If you don't buy quickly on softness like last week's, chances are you're sitting on the sidelines for a big gap-up open. Many market players are tired of missing out and they jump in on shallow dips.

We are off to a very strong start and the fact that we haven't had a negative Tuesday in over five months isn't hurting. Breadth is extremely strong with about 4,300 gainers to 700 losers. Gold is the laggard again while biotechnology and solar are the leaders.

I've mentioned solar energy quite a bit lately and that continues to be the leading momentum group. A big report from Canadian Solar (CSIQ) is propelling the group. These themes have a tendency to stay hot longer than you might think, so don't be too quick to give up on them if they falter. SunPower (SPWR) and CSIQ are my favorites in the group. I'm closely tracking MEMC Electronic Materials (WFR), which I mentioned Friday.

Source: TCNet

The strength is a bit overwhelming but a few names I've discussed that are doing well include Tesla (TSLA), Sarepta (SRPT), Ambarella (AMBA), Immersion Corp. (IMMR), Royale Energy (ROYL), Renewable Energy (REGI) and Gran Tierra Energy (GTE).

I'll continue to look for new buys, but be willing to jump on speeding trains if you want in.

May 28, 2013 | 8:25 AM EDT  

The Uptrend Remains Intact

  • Still no reason to be bearish yet.

You just keep pushing. You just keep pushing. I made every mistake that could be made. But I just kept pushing. --Rene Descartes

The market showed signs of stress last week as the S&P 500 had three straight negative days for only the second time this year. The losses Thursday and Friday were minimal and there was strong intraday action, but the upside momentum and cooled off as many extended stocks rested.

The market is gapping up strongly this morning as the market tries for its 21st straight positive Tuesday but it is interesting that there are more key market pundits calling for a market top. It is certainly not hard to make a good argument for why we should see some downside but what it really boils down to is how the market regards central bankers.

The catalyst for the weakness last week were comments by Fed chief Ben Bernanke, that were confirmed to varying degree by Fed members, that maybe the Fed would curtail some its bond buying later this summer. Nothing concerns market players more than potentially tapering by the Fed, but there is still enough pessimism about the overall economy to prevent any real fear that the Fed is going to exit soon.

The Fed dance is very tricky but the way this market has acted so far this year has created huge underlying support and even with worries about the Fed, dip buyers are eager to snap up stocks on any pullbacks.

We saw good examples of this on Thursday and Friday last week when the bears were in good shape to build on the Bernanke selloff, but after some intraday weakness the buyers jumped in and helped the market close with just minimal losses. If there was any fear, it was fear of being left behind rather than worry about more downside.

Dip buyers have had very few opportunities since mid-April to do their thing so it is understandable that they are showing aggressiveness, even though there are more significant macro concerns bubbling up. Being worried about the big picture has not worked and the market really doesn't seem worried yet about a Fed exit, but we have to watch for Fed-speak. Talk about tapering is going to produce very swift responses.

Technically, last week's weakness was beneficial for many individual stocks that had gone parabolic and needed consolidation. It should help stock-picking that not everything is a chase now. And themes in solar energy, biotechnology and a few other places are working well.

Overall, the uptrend we have been in since the first of the year is still firmly intact. Last week's little hiccup could developed into something more dire but there is good underlying support and interesting trading so I don't see any reason to be too bearish. It is possible that a topping process has begun but it is premature to focus on that too much now.

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