The Trend Is Still Healthy

 | Jun 16, 2014 | 4:13 PM EDT
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The indices didn't do much today, but they held steady and there was strength under the surface in key momentum names like Tesla (TSLA) and Zillow (Z), as well as small-caps. It was healthy action, especially given the weakness in overseas markets overnight.

The bears will argue that the indices are stalling, but this is exactly the sort of action you want to see in a market that is somewhat extended. There is obviously underlying buying support and, more importantly, a willingness to chase pockets of momentum and speculative small-caps. The bears keep talking about complacency and lack of fear, but it has been meaningless to this market.

There continue to be plenty of good bearish arguments, but, ultimately, all that matters is the price action, which continues to look good. The anticipatory bears are struggling again, while those who have stayed with the trend are making money. It is a bit slow and definitely challenging if you are putting new money to work, but the trend is still quite healthy.

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

June 16, 2014 | 1:32 PM EDT

Bears Are Frustrated

  • Their contrary-sentiment argument hasn't worked in years.

It is a bit choppy but good underlying support continues. Breadth is very close to even but we have a little relative strength in small-caps, which gives the trading a better tone. There isn't a lot of wild momentum but names like Tesla (TSLA), Vipshop (VIPS) and Zillow (Z) are acting well.

The market action is healthy, which frustrates the bears. Rather than focus on negative news, they have resorted to the old contrary-sentiment arguments. They claim that things are so frothy and there is so little fear that we must be close to a top. The logic is that when there is an extreme level of bullishness there isn't much buying power left to take the market higher, therefore, a top must be near.

The problem with the contrary-sentiment argument is that it hasn't worked in years. The problem is that even when sentiment is bullish and there is a high level of complacency, we still have underinvested bulls and plenty of buying power. What the contrary bears are forgetting is that the Fed has created a flood of liquidity and that money continues to seek a place to go. Market players still have cash, and that kills the whole argument about there being too much bullishness. Sooner or later, we'll have a nasty correction, but if you are trying to time its occurrence based on sentiment, you might as well use astrology.

The dip-buyers have done a nice job taking advantage of the intraday dip. My stock of the week, VASCO Data (VDSI), is showing life and I added to solar energy pick SunEdison (SUNE). Pernix Therapeutics (PTX), a small biotechnology name, is also of interest as it breaks higher.

June 16, 2014 | 10:10 AM EDT

Energy in Solar

  • Solar, biotech, chips and momentum names attract interest.

Overnight indications signaled a rough open this morning, but the buyers stepped up and there is plenty of underlying strength. Breadth is slightly positive but it is steadily improving as biotechnology, chips, solar energy and some momentum names attract interest.

All you really need to understand about this market is that there is great anxiety over being underinvested or not keeping up with the indices. Last year was a very poor year for active managers and this year has been challenging as well after the meltdown under the surface in March and April. Many managers have to make up ground and this market is not making it easy to produce relative performance.

I'm focused on solar energy names in the early going. SunPower (SPWR), which I've mentioned numerous times lately, is starting to break out on good volume. SunEdison (SUNE) has a big target this morning, which is driving the name. First Solar (FSLR) is turning back up and attracting early volume.

The big challenge continues to be putting capital to work. It is very easy to be cautious and trade too small. I'd definitely be kicking myself on not being more aggressive with stocks that are working. The solution is to keep digging for ideas, and that is what I'm going to do.

June 16, 2014 | 8:35 AM EDT

Running on Anxiety

  • The fear of underperformance is heartily trumping other issues.

There were many terrible things in my life and most of them never happened. --Michel de Montaigne

After struggling on Wednesday and Thursday, the market surprised some folks on Friday with relatively strong action. The bears were looking for worries about the Iraq crisis to move buyers to the sidelines, but the mood was sanguine and there was no big rush to sell. The fear of missing out on the rally is trumping worries about the macroeconomic picture.

With the indices recently hitting new highs, and given the overbought technical condition, many traders' the main focus is on what can go wrong. The Iraq situation provided a good excuse for some mild profit-taking, but the bears are now focused on the next possible negative catalyst.

Iraq is impacting this morning, too, as overseas markets have been weak overnight. But the main area of concern this week will probably be the Federal Reserve, which is due to issue its interest-rate decision on Wednesday at 2 p.m. EDT.

It is widely anticipated that the Fed will continue to taper off of bond-buying, and that there will be no change in interest-rate policies, but the market will be intently focused on any comments about how soon it is likely to start raising rates. As long as the economy continues to improve as slowly as it has been doing, there won't be too much concern. But, when the Fed does act, the market will likely have a very hard time digesting the development.

Right now, the market's big challenge is that it seems logical to assume we'll see some weakness in the near term. The major averages are technically extended, there is some negative news flow, slow summer seasonality is kicking in and the Fed has the potential to disrupt things. It is very easy to craft a bearish thesis right now.

The problem with a bearish thesis is that this market just doesn't seem to want to correct very much. While there is a high level of complacency, there isn't a lot of excitement, either, and there appear to be many underinvested bulls who are constantly looking for entry points. Folks' efforts to put money in play constitute the biggest positive that this market has going for it. We simply can't underestimate how much anxiety about underperformance is driving the market. Many bears don't seem to understand that the fear of being left out of upside action is far stronger than the fear of being caught in a reversal.

We have some deal news to spice things up Monday morning. The proposed Medtronic (MDT)-Covidien (COV) deal is going to raise concerns about tax avoidance, and politicians may have to actually acknowledge that high taxes do influence behavior. Much discussion about this topic is likely in the next few days.

The Fed announcement will be the big event this week, but the Middle East issues will cause some movement as well. Stock-pickers will be working hard to find some ways to put money to work. While it is easy to find good reasons to worry, the price action is still quite positive.

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