Reset Needed

 | May 30, 2013 | 4:25 PM EDT
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The bulls did a nice job today of shrugging off the recent poor action, but volume was light and the market faded late in the day. Nonetheless, the hot money was looking to chase again and the mood felt more upbeat.

The pattern has been for the market to build on technically questionable action like this, but under the surface there seemed to be hesitancy. There were less than 300 new highs, breadth could have been better and the close was poor. It wasn't the same euphoria that drove the market up since mid-April.

Although there hasn't been any upside progress over the last six days, the action is still nothing more than consolidation. Bears are saying that this is the start of a topping process, but the bears don't have much credibility when it comes to calling tops lately. While this action has flaws, we still have to wait for weak price action to indicate a change in market character.

An awful lot of folks are rooting for market weakness. We need resets and we aren't going to get them with low-volume moves like we had today. A good shakeup would make for much more interesting market.

The trend is still your friend, but it is getting to be a bit boring.

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

May 30, 2013 | 12:55 PM EDT

Bulls Keep Charging Ahead

  • But we can expect choppier action. 

The market is chugging along and ignoring the weak action over the past week, but I'm not seeing the sort of momentum that gives me confidence that we can keep on running. The bulls still don't want to back off, and who can blame them, since they have done so well for so long? But my gut feel is that it is going to be choppy going forward.

The volatility in Japan and in the iShares Barclays 20-Year-Plus Treasury ETF (TLT) is a likely sign of what awaits equities. That isn't necessarily a bad thing. The hardest part of trading the market this year has been the one-way action and the lack of volatility. The best approach has been buy-and-hold bullishness. Aggressive traders have tended to underperform, because sales are almost always premature.

Over the past week, there has been a change in market behavior. We still have very good underlying support. Even when we have a down day, we have tended to close strong as the dip-buyers stay active, but we aren't making any upside progress, and the longer that persists, the more it affects sentiment.

I'm trying to cultivate an open mind and will stay reactive as the price action develops. There are some warning signs, but being too negative too fast has been dangerous in this market. We consistently forget the recent negatives and regain our footing. If you are too anticipatory, it has been very costly.

Once again, we'll see how we close. If we have a poor finish, I'll have a little more concern that the character of the market is shifting, but I'm definitely not ready to proclaim the uptrend over.

May 30, 2013 | 10:15 AM EDT

The Drug the Market Can't Resist

  • Can't get enough liquidity.

As so often has been the case, the market suddenly spikes higher just when it looks like it is on the verge of a breakdown. Wednesday's poor breadth and weak action in leading stocks set the stage for more downside. We even had a massive pullback in Japan and this morning's economic reports were a bit below expectations.

If you have been paying attention to the market, you know very well that looking for downside follow-through on bad news just doesn't work. In fact, bad news seems to stir the belief that the Fed will pump more liquidity, which is a drug this market can't resist.

The hot money is busy chasing names like Cree (CREE), Kors (KORS), SunPower (SPWR), FleetCor (FLT) and HCI (HCI). I'm working hard to put cash to work. I added to a position in Immersion (IMMR), which has had a very nice volume pattern lately and is trying to move through resistance at $15. IMMR looks to earn $0.29 this year and jump 121% to $0.64 next year. With that sort of growth, the stock looks like a good value.

May 30, 2013 | 7:53 AM EDT

Struggles Are Refreshing

  • They're an indication that there are humans out there.

Nothing is pleasant that is not spiced with variety.  -- Francis Bacon

The market has been struggling for a week now and the big question for us to contemplate is whether this is the beginning of a topping process or just some healthy consolidation that will set up further upside.

We have had a great run so far this year, but the bears keep telling us that disaster awaits and we better be ready to run for safety when the big turn comes. That sort of anticipatory thinking has been a disaster for many market players, but now that we do have some softer action we need to make sure we are extra vigilant.

What has been very tricky about this market is that it has a tendency to come back very strongly just when it looks like it is starting to crack. For example, the last couple times Investors Business Daily has moved to "market undergoing a correction' it has been close to a short-term low and we quickly regained our footing.

But when the market starts to show signs of stress, like it has lately, prudent market players have no choice but to be more cautious. It is far more important that we protect our capital when it looks like the mood is shifting than it is to stay long in hopes the market will come roaring back yet again.

One of the main reasons that the rally this year has been called the most hated ever by some pundits is that it has lacked a normal rhythm. There hasn't been periods of consolidation and increased negativity. It is obviously a function of manipulation by central bankers, but it is hard for many individuals to embrace a market that is so lacking in real human emotion.

From that standpoint, it actually is quite refreshing to see some market struggles for a change. It is an indication that there are humans out there and that they actually have some emotions about the market. We need worry, concern, euphoria, stress and all those human traits to help create opportunity.

While I'm concerned that we may be seeing some topping action, I'm also quite relieved to see some normal downside for a change. We may eventually have more downside, but this sort of shakeup will give us better trading. Rather than fight it and deny it, we need to embrace it and enjoy it. 

A little variety is what has been missing from this market for quite a while, so while downside action may not be too attractive, we need to keep in mind that this is the way we will eventually see much better opportunities.

Despite some very weak action in Japan overnight, we have positive indications this morning. There is quite a bit of talk about how there is worry about the Fed tapering off QE, but that is being ignored at the moment. I'll be focusing on stock picking, but will be ready to be more bearish should the recent weakness gain some traction.

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