Action Improves Below the Surface

 | Jun 11, 2014 | 4:31 PM EDT
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In March and April, many traders were complaining about how the DJIA and S&P 500 failed to reflect what was really going on in the market. Extreme weakness under the surface was completely hidden by strength in the senior indices.

Today, the opposite occurred. The senior indices acted poorly but there was positive action under the surface in small-caps and momentum names. Even biotechnology and solar energy, which led the downside a few months ago, perked up.

Most notably, the market is in a position for backing and filling, but traders were stubborn in their buying. We had about 175 new highs, which is down quite a bit but still respectable in a market that was selling off.

Traders never want to believe that the first dip after a new high marks the end of the trend. They tend to provide good support on the first pullback and only grow weary after things stall out more than once. That is why it is often said that tops are a process. It takes a while for the mood to shift and, right now, there isn't much shifting taking place.

It is refreshing to see better action under the surface while the DJIA underperforms. That sort of speculative interest has a healthier feel than running up big-cap defensive stocks. Things are still a bit extended, but the market is handling it well.

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

June 11, 2014 | 1:17 PM EDT

Still Sticky to the Upside

  • Rallies don't just suddenly fall apart and go straight down.

I am always surprised by how sticky the market can be to the upside. It doesn't just suddenly fall apart and go straight down after a strong run. It doesn't matter if it is extended or overbought. There is always good buying support on the first bout of selling at the highs.

Breadth isn't that great but my screens are still showing quite a bit of green. I tend watch momentum and speculative names, so the good action that I see makes me feel that this isn't the start of a major correction. There still is too much underperformance and underinvestment supporting stocks.

I have my eye on a couple of potential additions into the close, such as SunPower (SPWR) and GT Advanced Technologies (GTAT). Rather than join the folks looking for tops, I'm going to stay focused on looking for stocks that continue to run. We should know by now that it is better to stick with the trend even when it feels like it has gone too far, too fast.

June 11, 2014 | 10:33 AM EDT

Don't Be Too Negative

  • There are still plenty of signs of underlying support.

No one should be too surprised by a little bout of profit taking. We are obviously technically overbought and in need of rest and consolidation, but you have to be careful about being too negative. There are still plenty of signs of underlying support, and you can spot the dip-buyers snapping up their favorites.

Breadth is not quite 2 to 1 negative and it has improved from the open. Small-caps are lagging slightly but there's interest in select momentum names like Priceline (PCLN), Amazon (AMZN) and Baidu (BIDU). Facebook (FB) is pulling back a bit and I'm interested in adding to that as the day progresses.

A number of things I've mentioned recently, such as Arista Networks (ANET), Tarina International (TEDU), Vertex Energy (VTNR) and Albany Molecular Research (AMRI) are acting well. I haven't done much so far but I have my eye on SunPower (SPWR) if it can close near the highs for a change.

I suspect a lot of flippers are playing this bounce action and they are not going to stick around for long if they see quick profits. The important thing is to hold the opening lows. If we don't, another round of sell stops will be triggered.

June 11, 2014 | 8:37 AM EDT

Still a Rough Market

  • It remains extremely difficult to put capital to work.

Note: My cable is out, and I have limited Internet access right now. I'll be checking in when I can.

Momentum always lasts longer than you think it will. I've written this many times, but it can still be difficult to believe that the market won't be reasonable and do what we think it should. After all, the indices have had a huge run, and it makes sense that they should take a rest -- but if you've been trying to time a market top, you have likely cost yourself some profits.

The most interesting aspect of the market lately is the renewed vigor among small-caps, speculative names and momentum stocks. These stocks corrected deeply for a couple months while the underlying action was hidden by gains in the S&P 500 and Dow industrials. Still, many of these names have never made it back to their highs, and now the bears are telling us the head-and-shoulder patterns are forming.

If you want to be a growly grizzly, it is very easy to find good reasons to do so. But, time and again, the best way to deal with this market has been to stay focused on the price action and to avoid turning bearish until there is some actual weakness. If you are overly anticipatory in looking for a top, you have cost yourself quite a bit.

It definitely isn't easy to deal with the market at this point. The buy-and-hold bulls will continue to celebrate, but if you have capital you are trying to put to work, it is extremely difficult. The vast majority of stocks are extended, mostly on light volume, and you have to have a high level of faith that we won't see any normal-profit taking soon. On the other hand, it is suicidal trying to short this market.

The best thing you can do is stay selective with new buys and manage everything fairly tightly. One of the most frustrating things about this market is that, if you set stops too tightly, you can get jiggled out and be left on the sidelines when the market has a good finish, as it did Tuesday. It's been very easy to make premature sales lately, and I have made mine for sure.

We're seeing some softness this morning, and it will be interesting to see how aggressive the dip buyers will get when more severe weakness arrives. Dip buying often loses its appeal when the market doesn't immediately bounce back -- but, for a while now, buying weakness as quickly as possible is the way to go.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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