Taking It Slow

 | Jul 02, 2013 | 4:27 PM EDT
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After a five-day bounce by the Nasdaq and with a half-day of trading in front of the holiday, the market was ripe for a little profit-taking. Once again, we had early strength and late weakness, but it looked like routine selling by folks who wanted to lock in gains and take it easy for a few days.

Technically, the V-shaped bounce is still under construction, and a slight pause in the action doesn't change much. In fact, a little consolidation is a good thing. The longer it holds the better the chances of an assault on the heavy overhead resistance levels that still exist.

I'm eager to protect recent gains and not risk the low-volume volatility that is likely tomorrow and Friday. I'm not too worried about things running away from me, and I anticipate I'll be able to put money back to work within a week or so.

There are still a few interesting setups but they aren't easy to play when so many folks are focused on how slow things are going to be. We'll stay opportunistic and if there aren't any opportunities, I'm not going to worry about it.

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

July 02, 2013 | 1:53 PM EDT

Book 'em if You Got 'em

  • Most traders are starting the holiday early.

It is slowing down as many market players are likely to skip tomorrow's half-day session and start the holiday early. After the run we have had, many folks are inclined to book good gains and look for new trades when things pick up next week. That is exactly my feeling, and I've sold down quite a few positions today.

We have had so many weak finishes lately that it looks like sellers may be anticipating another one. Another intraday U-turn is looking to test the early lows. Breadth has turned negative and momentum is drying up. My view is you should book 'em if you got 'em. Profits, that is.

I only have one new buy today, AcelRx Pharmaceuticals (ACRX). The stock received an outrageous $100 target from an analyst, which is the sort of thing that can stir up action in thin holiday trading. Other than that, I'm a seller and not looking to put new money to work.

July 02, 2013 | 10:36 AM EDT

Bulls Hungry for Action

  • The bears get jammed again.

The anticipatory bears are getting jammed again as this market refuses to pull back. It looked like a slightly soft open might finally trigger profit-taking but the buyers were hungry for action and immediately went to work.

Breadth is not quite as strong this morning with about 2,900 gainers to 2,000 losers but there's sector strength with biotechnology leading again and interest in chips, oil and retail. Gold's bounce is fizzling again.

I'm impressed with the action in Tesla (TSLA), Apple (AAPL) and Noodles & Co. (NDLS). Momentum money looking for something to do, and this is a good example of how trading around holidays can have a positive bias.

I'm been paring back positions this morning -- not out of bearishness but to lock in gains and look for new opportunities. Quite a few stocks look a bit frothy and it is nice to start with solid profits on the books.

Krispy Kreme (KKD) was a Shark Technical Buy this morning and is breaking out nicely. I pared back Albany Molecular Research (AMRI), Canadian Solar (CSIQ) and InvenSense (INVN), which continue to act well. I cleaned out a few other small positions I've accumulated, as well. I have quite a bit of cash and I'm itching to buy, but it is becoming increasingly difficult as conditions become more overbought on lighter volume. All we can do is keep digging and see what we can find.

July 02, 2013 | 8:27 AM EDT

A Balancing Act for Traders

  • It's easy to make the bear case but the bulls are making the money.

Focus on the journey, not the destination. Joy is found not in finishing an activity but in doing it. --Greg Anderson

Focus on the journey, not the destination. Joy is found not in finishing an activity but in doing it. --Greg Anderson

Over the last five trading days, if you bought the close and sold the open the next morning, you have made pretty good money. If you had bought the open and sold the close that day, you have barely broken even. Almost all the recent gains in the indices have come overnight, which doesn't change the fact that we have had a very big bounce but it hasn't been all that easy for active traders who aren't carrying a lot of positions overnight.

As we head into the Fourth of July holiday, things become even more challenging. The market is technically extended and heading into resistance, and trading volume is likely to drop sharply as many folks enjoy an extended break.

The V-shaped bounce is still working but again the close was weak. During this very strong five-day bounce, the market has not closed at its highs even once. That is very unusual when the market is trending upward. For example, if you look at the run-up in May, it closed near the highs consistently. It is often said that the smart money buys the close and the dumb money buys the open. If that is the case, the IQ of this market is pretty low right now.

While it is easy to find flaws in the indices, there has been very good action in individual stocks. Breadth has been consistently strong and the hot money has been aggressive in chasing Tesla (TSLA), Google (GOOG), Priceline (PCLN) and even Apple (AAPL). Biotechnology has been particularly good especially after the Onyx Pharmaceuticals (ONXX) takeover talk yesterday.

The temptation is to start anticipating a pullback in the indices. It is logical to expect backing-and-filling action, but that has consistently been a mistake in the past year when the market has acted similarly. Once we have a V-shaped bounce, the smart move has been to stick with it and not anticipate weakness. If you are anxious to put on some shorts, you need to wait for actual price weakness. Shorting into strength has been very dangerous.

What is really favoring the bulls is the fear of tapering off bond buying by the Fed has dissipated. Bond yields have come back down as various Fed speakers have made it clear that there isn't going to be any abrupt change in policy, especially if the economy is still slow.

My game plan is not to worry too much about the indices but stay focused on individual stocks that are acting well. If it looks like a reversal is finally going to develop, I'm going to quickly tighten stops and protect profits. I have no qualms about hitting the eject button at the first sign of problems. I suspect many other market players will be happy to raise cash and enjoy the holiday if we start to sputter out.

It is real balancing act for traders here. There's another strong V-shaped bounce (which has a history of continuing) but the market is extended, has not closed well and we are dealing with technical resistance. On the other hand, many individual stocks continue to act well and sentiment has improved. It is easy to make the bear case but the bulls are the ones making money. To make it even harder, volume is going to slow down into the half day of trading Wednesday.

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