The Bulls Still Have the Edge

 | Jun 12, 2014 | 4:25 PM EDT
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The market suffered a second day of profit-taking, which isn't totally unexpected after the big run we've enjoyed. But the selling was a bit more intense today and we trended down almost all day before a slight upward spike at the finish. It wasn't a rout, but a number of stocks, mostly small-caps, suffered good hits. Facebook (FB) and a number of other momentum names saw pressure as well.

Money moved into oil and precious metals while biotechnology and retail struggled. Volume picked up slightly, which makes for a technical distribution day, but despite the negatives, the uptrend is still intact. A little damage has been done and another day like this is going to be a problem, but the bulls still have the edge.

I had stops trigger today but I also added oil and solar energy names. Selective stock picking is becoming more challenging, but there were ugly intraday reverses in Palo Alto Networks (PANW) and Weibo (WB), for example.

After the close, Intel (INTC) guided revenue up substantially, which is going to help the technology group tomorrow. Chips have been acting well but a number of traders have noted that chips consistently lead very late in a rally.

It is a bit trickier now, and we'll need to stay focused as things develop. The uptrend is under some pressure but no major change in character has occurred yet.

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

June 12, 2014 | 1:58 PM EDT

Selling Gains Momentum

  • A poor close will cause additional worry.

The selling is picking up steam. But it's worrisome is that bids are starting to disappear as sellers dump more aggressively. Breadth still isn't terrible but it has declined a bit, and a number of small-caps seem to be breaking down. We really could use dip-buyers, but they aren't stepping up so far.

This is how the correction in March and April started, but I still feel it is premature to be overly negative. That doesn't mean you aren't disciplined and take stops if you have something breaching key levels, but given how far this market has run recently, it can afford to give some back.

I'd like do partial sells this afternoon if the stocks I'm holding don't bounce back into the close. I've often found that early defense carries a cost, but it helps make it easier not to panic-sell at the wrong time.

A poor close is going to cause additional worry, and the way things are right now, it is a good possibility. The uptrend is still intact, but the selling is picking up momentum and that is concern.

June 12, 2014 | 10:49 AM EDT

Market Still Looks Healthy

  • Volatility kicks in, but don't be too negative too quickly.

Yesterday's profit-taking is continuing today. We are hitting intraday lows as I write but it is picking up steam as stops are triggered. Dip-buyers have been waiting for this action, so it will be interesting to see how fast they take advantage. Dip-buying is always a great idea when stocks are strong, but when they weaken, the attitude can change quickly.

Breadth is running about two gainers to three losers, and the main trading theme is oil. Precious metals, oil and solar energy are leading, while momentum names and small-caps are mixed.

The good news is that we aren't seeing the sort of selling that killed so many stocks in March and April. That can still develop, but I view this as just a healthy pullback in the context of an uptrend.

I've been adding a few oil plays this morning, including Synergy Resources (SYRG) and Hercules Offshore (HERO), but my No. 1 pick right now is SunPower (SPWR). Solar energy should benefit from higher oil and SunPower has been building a very solid base. It needs a strong move through $35 to bring in the technical buyers and it looks close to doing so.

Increased volatility is kicking in so watch your stops, but don't be too negative too quickly. This is still a healthy-looking market.

June 12, 2014 | 8:11 AM EDT

No Reason to Go Negative

  • The action remains healthy after yesterday's minor pause.

It's not the situation, but whether we react or respond to the situation, that is important. --Zig Ziglar

The market had some good excuses for profit-taking on Wednesday, but the selling was contained and actually looked quite healthy. The indices needed a rest after a straight up move, and they did get a rest, but it wouldn't hurt if this action played out further.

What's interesting is that this minor pause has been sufficient to cause many people to start declaring that a deeper correction is about to occur. This is likely because many of these folks were caught by surprise and have missed out on the recent strength. Once again, the market caught many folks underinvested and then never let them jump in very easily as the averages went up for 12 of the last 15 trading days. Of course, volume was light, too -- which always seems to fool the bears, who think this indicates a lack of conviction.

While we did see some selling on Wednesday, there was plenty of resilient action in underlying stocks. It was the opposite of the February and March action, when small-caps and momentum names underperformed while the S&P 500 and Dow industrials held steady. This time we're seeing speculative interest under the surface, which is a much healthier dynamic than is leadership in defensive names.

The primary excuse for the selling yesterday was that the World Bank cut its yearly forecast for growth to 2.8% from 3.2%. Since the European Central Bank just cut its interest rates again, it's unlikely that this constituted any big surprise. The market doesn't seem to care, so long as the central bankers keep the spigot of cheap cash flowing.

It is likely we will start hearing more about why this rally is about to come to an end. There are concerns about economic growth, political issues in Washington, seasonality, valuation and a host of macroeconomic issues. As for technicals, the bears are pointing out the potential for a head-and-shoulder top in the iShares Russell 2000 Index (IWM), as well as a variety of individual stocks that are forming potential right shoulders.

There is never a shortage of insightful and compelling bearish arguments. If you want to make a strong bearish case, you can always find some very good logic. The problem is that the market doesn't much care about that logic. What has been driving the market is that there simply aren't many alternatives out there, and all the cheap capital produced by the central bankers has to go someplace.

The best way to deal with this market is to forgo the big-picture arguments and to simply stay focused on the price action. Individual stocks will tell us what we need to know. When long trades fail to work and momentum dries up, that's when it will be time to start listening to the bears.

Right now, a pullback is healthy and positive, and there should be no rush to become overly negative. If the character of the market action shifts, so should we, but the action continues to look healthy at the moment.

In short, stay focused on what can go right, rather than what can go wrong.

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