Stock-Picking Wins the Day

 | Jun 10, 2013 | 4:33 PM EDT
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It was a very mixed day of action, but given how much the market bounced Thursday and Friday, it wasn't all bad. The indices were basically flat but breadth was negative on the NYSE and positive on the Nasdaq. The small-caps gave the Nasdaq the edge.

What I found notable was the strong performance in small-caps I've been trading. Maybe I was just lucky, but it was nice to see that good stock-picking was rewarded. Look at my weekend column, where I presented five different charts; all of them did fairly well today. That tells us there's still speculative interest, and that means buying support is likely.

I discussed this morning how the tendency of this market has been to produce V-shaped moves once it bounces like it did last week. There was a little pause today, which is perfectly healthy, but it is going to be interesting to see if the bulls can keep pushing like they so often have. A failure of this bounce would be a major technical change but, at the moment, I don't see any reason to expect that.

Focus on stock-picking -- but if the market starts to struggle, tighten up. At the moment, the best defense is a good offense.

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

June 10, 2013 | 2:10 PM EDT

A Stock Pickers' Market

  • Refreshing, even if the big picture is rather mixed.

The major indices are struggling and breadth is weak, particularly on the NYSE, but there are pockets of speculative action under the surface.  It is a stock pickers' market, which is refreshing even if the big picture is rather mixed.

The bullish spin is that we had the biggest two-day move of the year, so holding steady and consolidating is a positive.  The bearish spin is that we just had a good oversold bounce and now the flippers, profit-takers and shorts are ramping up the pressure and looking to roll the market back over.

If you are holding the right stocks, you probably feel pretty good about this market. But a more objective view would probably raise niggling concerns.  The tendency of the market this year has been to keep running and even gain strength once it bounces, but it is much more mixed today than usual.

My plan is not to be too concerned about the overall market but stay with the individual stocks that are working. Some I've discussed over the past couple of weeks and still holding include YY Inc. (YY), (SPRT), Renewable Energy (REGI), Canadian Solar (CSIQ), NVidia (NVDA), Ambarella (AMBA), Celldex (CLDX), ACADIA Pharmaceuticals (ACAD) and Albany Molecular Research (AMRI).

June 10, 2013 | 10:45 AM EDT

The Fed Is the Difference

  • What separates this V-shaped bounce from the others.

The bulls are having a difficult time building on Friday's strength. Breadth is poor with just 1,850 gainers to 3,200 decliners. Solar energy and gold are leading while biotechnology and homebuilders lag.

I suspect that the upgrade of U.S. debt by Standard & Poor's is causing worries about further quantitative easing by the Fed. If the economy is strong enough to be upgraded, doesn't that increase the likelihood that the Fed will start to taper off its bond buying?

What is most different about the market compared to prior times when we have had V-shaped bounces is the Fed. Previously, market players had little worry that the Fed would continue to be supportive but now there is more and more talk about the economy improving and that is also being reflected in increasing bond yields. There is nothing that worries the market more than a less accommodative Fed.

Despite the market's struggles this morning, a number of stocks I've highlighted recently are performing well. Biotechnology names such as Celldex (CLDX) and ACADIA Pharmaceuticals (ACAD) are bucking the sector trend. Canadian Solar (CSIQ) and YY Inc. (YY), which I highlighted in my weekend column, are performing well. Small-caps are weak overall, but good stock-picking is working.

June 10, 2013 | 8:31 AM EDT

Think V-Shaped Bounce

  • If one fails here, it will be a major change in market character.

Repeat anything often enough and it will start to become you. --Tom Hopkins

Does the pattern of a straight-up bounce to new highs repeat for the third time this year? That is the question as we kick off the trading week.

In both February and April, the market pulled back and just when it was on the verge of gaining momentum to the downside, it found support and within a matter of a week or so was right back at recent highs. Both times, any concerns were completely forgotten as buyers suddenly worried that they needed more long exposure.

This time, the correction over the past couple of weeks was a bit deeper. The market was more extended to start with so it didn't even hit 50-day simple moving average support until it had pulled back a fair amount. But, once again, it brought in the dip buyers and produced a very strong bounce.

The issue now is whether this is going to be another one of those V-shaped moves that we have seen so often. I keep thinking that this pattern of going straight back up as if nothing has happened can't continue, but I've been proven wrong over and over again. The dynamics of this market are such that when it starts to go back up, the computer programs and underinvested bulls keep on pushing. Also, performance anxiety forces fund managers to buy in hopes of catching up.

The main thing that continues to drive the market is the endless liquidity created by the Fed. Even though the recent pullback was caused by concerns that the Fed might start to taper off its bond buying, that doesn't affect the current amount of cash still sloshing around. It still has no place to go, especially as bonds have been weakening lately.

Right now, we have to be thinking in terms of another V-shaped bounce. Yes, volume on the bounce last week was not very impressive and there's overhead resistance as the S&P 500 approaches 1650, but those concerns have been irrelevant during prior V-shaped moves. It is one of the big changes in the market and it has bedeviled the poor bears who like to think that common sense rules of technical analysis still apply.

If this bounce fails and the 50-day moving average support around 1606 is breached, it will be a major change in market character. But given the pattern of this market since November, there is no reason to expect that will happen. We'll see what happens, but this market looks just like it did on prior pullbacks this year.

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