A Market With No Memory

 | Jun 13, 2013 | 4:09 PM EDT
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After two days of very bearish action the market reverted to the behavior the bulls have enjoyed most of the year. To start the day it totally ignored a huge drop in Japan. It opened down just slightly and then slowly ramped up and gained momentum all day. To cap things off, the Fed's mouthpiece at the Wall Street Journal posted an article late in the day that the Fed will likely to try to convince the market not to worry about tapering the bond-buying program.

Technically, volume wasn't very impressive but it returned to Wednesday's highs and there was solid support at the 50-day simple moving average. As long as it stays above that level, the bears are going to have a tough time.

What we saw today was a good example of how this market can turn so quickly and totally forget very poor action. That is especially so when the central bankers are trying to send a message.

The single-most important rule of trading this market for years is "Don't fight the Fed." The market was worried that the Fed was going to become more hawkish but they are now sending a message not to be too hasty in drawing that conclusion. If history is a guide, get back on board the train and enjoy the ride back to the highs.

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

June 13, 2013 | 1:33 PM EDT

The Bulls Must Prove Themselves

  • This bounce isn't quite enough.

There's slow but steady buying today, which was a good sign when the market was trending up most of the year. There would be some uncertainty about buying but the longer the action drifted higher and stayed positive, the more willing buyers were to jump in.  In the majority of cases, that led to V-shaped action.

After the technical damage suffered over the past two weeks, I don't think a V-shaped bounce is going to develop so easily this time, but keep in mind that many bulls are still thinking that way and are going to push, even squeeze, the bears a bit.

Technically, the S&P 500 has held right at the 50-day simple moving average for the second time in six trading days, and buyers are keying in on that level.  As long as it holds, there's a good chance of trading-range action. But if it fails, it is likely to be quite ugly as sell stops are triggered.

I am looking at adding to positions in Vertex Pharmaceuticals (VRTX) and Canadian Solar (CSIQ) but I'm not doing anything too aggressive. I have plenty of cash and I would like to put it to work, but my trust level is low. The bulls have to prove themselves and this bounce today isn't quite enough.

June 13, 2013 | 10:40 AM EDT

Creeping Bullishness

  • Not much energy, but the action is holding.

The dip-buyers are hesitant but nibbling, and the indices are inching into the green. The overall technical picture is definitely negative, but that doesn't mean the market can't bounce as opportunistic traders try to catch bounces. Breadth is still negative but improving. The biggest sector standout is broadcasting due to Gannett's (GCI) Belo (BLC) takeover, which is generating some sympathy action in Sinclair (SBGI), Nexstar (NXST) and Gray Television (GTN).

This creeping bullishness has worked well for buyers as strength draws in more buyers and the momentum picks up. But the danger the last couple of days has been significant intraday reversals. We'll have to watch carefully for that again. Since the dip-buyers have been burned two days in a row, they will likely be skittish about holding.

I have my eye on a few things I'd like to add, including Vertex Pharmaceuticals (VRTX), Canadian Solar (CSIQ), YY Inc. (YY) and Sarepta (SRPT), but I'm only making minor buys. Gigamon (GIMO) is at the top of the list for hot-money traders.

I don't see much energy, but the action is holding. It probably would have been better if the market had opened lower. This sort of action is likely to trap overanxious bulls looking for a fast bounce.

June 13, 2013 | 8:11 AM EDT

Embrace the Ups and Downs

  • The market needs this cycle for healthy long-term growth.

In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again. --Chance the Gardner, Being There

The DJIA is down three straight days for the first time this year, the Nikkei 225 has fallen more than 20% from its recent highs, which signifies a bear market, and the headlines are full of talk about market chaos around the world.

What is most surprising about these events is that it took so long for them to happen. The one great certainty in the market is that we will have cycles of ups and downs. It is the nature of the beast. We will always have booms and busts. The central bankers have corrupted the natural cycle to some degree, but even Ben Bernanke and his cohorts will eventually be unable to stop the inevitable correction.

The news media churn out dramatic headlines as the doom and gloom grows thick, but market players should welcome this course of events. We need the cycle of ups downs for healthy growth over the long term.

One of the worst things about this market the last few years is how manipulated and artificial it has been. Whenever I talk with casual market observers they mention how they have no trust in the market. They feel that it is controlled by central bankers and that a day reckoning will soon arrive when we purge ourselves of that influence.

I have no idea how events will play out longer term but I welcome the natural ups and downs. The great benefit of being a trader is that you can benefit from volatility. This market has not been friendly to those who try to navigate the ebb and flow of human emotions. The only thing that has mattered has been the endless liquidity created by central bankers. Putting that money to work has created a lopsided, one-direction market.

It is fitting that what is creating this bout of panic is worry about the continuation of quantitative easing. Japan has fallen as it has decided to stand pat and the U.S. is struggling as the debate over "tapering" gains steam.

I suspect the central banks are going to try to reassure the market eventually and we'll rally, but for now the natural cycle of ups and downs is in place and we need to embrace it and look for ways to profit from it.

While this market correction can cause some pain if you are heavily invested, it makes me more optimistic about the future. This is how new opportunities are created. A market that goes straight up and never corrects is great for those who buy-and-hold but, over time, there are fewer and fewer ways to profit.

The important thing is to take defensive steps to protect capital and be mentally prepared as the cycle plays out. Eventually, it will turn again and that is when we will be rewarded for our patience, vigilance and hard work.

The market is doing what all markets do, and that is a good thing.

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