A Market Without a Memory

 | Jul 17, 2013 | 4:21 PM EDT
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All year, the toughest bet to make in this market was to anticipate that it would build on weakness Profit-taking and technical breakdowns were completely forgotten by the next day, and before you knew it, the market was right back to pushing higher without a worry in the world.

And maybe there isn't a worry in the world right now. Fed chief Ben Bernanke reassured us once again that the Fed is going to continue being accommodative and supportive, and given how this market has acted for so long, who in their right mind is going to doubt him?

The action today was the inverse of yesterday's action. While the indices didn't do much, there was very strong action under the surface and many of the momentum names that were dumped yesterday reversed and went straight up today. Tesla (TSLA), Netflix (NFLX), Priceline (PCLN) and Baidu (BIDU) are good examples.

Big earnings reports are hitting now and that is going to be the main driving force as nothing new is likely to come from the Fed after Bernanke wraps up his Congressional testimony tomorrow. Tonight American Express (AXP), IBM (IBM), eBay (EBAY) and Intel (INTC) are the main reports, and expectations are quite low.

Overall, the technical picture remains positive. Conditions are a bit extended, and it would be nice to have further consolidation, but the underinvested bulls are too anxious to be patient for long. They want in and they have learned that weakness doesn't last long.

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

July 17, 2013 | 2:07 PM EDT

Feeling Flat

  • Many market players seem uninterested today.

The bears have their fingers crossed that yesterday's selling wasn't just a one-day fluke, but breadth has been solid today and there doesn't seem to be any major worries. Ben Bernanke repeated his market-friendly spiel, and we can take comfort that any bad economic news will be a market positive.

We have had a bit more intraday volatility, but the tendency of the market to gap up and trade around flat continues. If you missed the gap-up open in the morning lately you missed the great bulk of gains, which just happens to be another reason why so many traders have not been very excited about this market run.

Despite the good breadth and the large number of stocks bouncing back from yesterday's weakness, there doesn't seem to be very aggressive trading. There's strong movement in things like Yahoo! (YHOO), Organovo (ONVO) and Tesla (TSLA), but many market players seem uninterested today.

I have a few things on my radar to consider into the close, such as Noodles & Co. (NDLS) and LightInTheBox (LITB), but I'm not planning any big moves.

July 17, 2013 | 10:35 AM EDT

Momentum Names Bounce Back

  • They aren't going away just because of a poor day like yesterday.

The dip-buyers bided their time Tuesday but they are active this morning as Ben Bernanke repeats for the third time that the Fed isn't going to taper its bond-buying much if the economy continues to struggle. The bears were anxious to declare that after one day of selling the top is now in, but they forget how many underinvested bulls have struggled to buy in the past few weeks.

A good example of this morning's bounce action is Tesla (TSLA), which received a $200 target from Dougherty this morning after Goldman slammed it with an $84 valuation. The valuation arguments vary so widely from the analyst that they are useless. What matters here is that the momentum money loves this stock and they are going to keep looking for reasons to buy it.

A number of momentum names that were hit yesterday are bouncing back today as dip-buyers look for high-beta opportunities so they can make up relative performance. These folks assure us that tops are a process and not a single point. They aren't going to go away just because of the poor action on a single day like yesterday.

The bears are hoping that the positive vibe will fade after Congress questions Bernanke, but the key here is that there is underlying support and it isn't likely to fall apart quickly or easily. I've done a partial flip of yesterday's TSLA buy and made a couple of other small moves, but I am staying patient.

July 17, 2013 | 8:10 AM EDT

Don't Jump to Conclusions Yet

  • It's still far too early to embrace a negative stance.

Almost everyone's instinct is to be overconfident and read way too much into a hot or cold streak. --Nate Silver

Many market players breathed a sigh of a relief as the indices finally broke their winning streak Tuesday. The major indices didn't even correct 0.5%, but there was aggressive selling in momentum stocks as the IBD 50 sold off 1.4% and the speculative interest in small-caps cooled quite a bit.

After the run this market has had over the last three weeks, a single day of selling isn't worrisome. In fact, it is positive, as we need consolidation and basing action to build a foundation for further upside. Of course, the long-suffering bears will pounce on this action and proclaim that it is the start of the topping process that they have been anticipating all year. While that is possible, it is still far too early to embrace a negative stance.

The timing of the selling comes at an interesting point as major earnings reports start to roll in and Ben Bernanke testifies before Congress. Fed talk has been pushing this market around, so there is nervousness about what Bernanke will say to Congress today. The market is still highly sensitive to any talk about tapering, but the Fed is bending over backwards to assure that rates will stay low for a long time.

Technically, the market is still in a very strong uptrend. The bears get excited quickly when they finally have a weak day after weeks of hoping and praying. It has been so strong lately that the selling is a bit more jarring than is typical, but in the bigger scheme of things, it is barely a blip.

I welcome a day like yesterday, as it breaks a pattern that has become extreme and makes it feel like there may be actual human emotions at work. The lopsided nature of the action has made trading extremely challenging, so it is nice to shake things up and maybe even create new opportunities.

The bears will try hard to convince us that yesterday was significant and the start of a topping process, but it is premature to jump to that conclusion. The market can easily afford profit-taking, and it would be healthy if we had more of it. That doesn't mean that the uptrend is ending.

I'm always hopeful that earnings season will shift the focus back to individual stock picking, but with Ben Bernanke in front of Congress, the market is going to stay focused on the central bankers. It won't take much for him to move the markets again, and that will trump whatever earnings reports have to offer us.

Earnings haven't had much impact yet, but tonight we have reports from American Express (AXP), IBM (IBM), eBay (EBAY) and Intel (INTC). Although expectations for INTC are very low, earnings from the company have often been a turning point for the market. There isn't much interest in the stock right now, but it may have an impact on sentiment.

Many of us have forgotten that the market can actually trade in both directions. It may not be such a good thing for the buy-and-holders who love the endless upside, but it sure makes for more interesting trading.

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