Tough to Find an Entry

 | Jul 22, 2013 | 1:51 PM EDT  | Comments
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cmg

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tsla

While calls for a market turn continue to build, stocks just keep plugging along.

It is slow, summer trading out there, but there are still plenty of buyers who are sick and tired of this market running away without them. We really have ideal "climb the wall of worry" conditions in place, but the worry isn't about economic conditions or fundamentals. The big worry is trying to keep pace with a market that doesn't let you in easily. That creates this supply of folks who just keep inching in because they are afraid they will never see an opportunity to buy lower.

We are seeing a bit of an intraday pullback now, but that doesn't seem to do much to scare folks into selling. In fact, many bulls want a pullback just as much as the bears do, so they can put more money to work.

I've been a net seller today, primarily because I don't see anything to add right now. On the other hand, the top-callers are becoming more shrill, but until there is some actual price weakness, I'm going to ignore them. If they can take out the opening lows, they may get a little traction, but those dip-buyers aren't going away too quickly.

July 22, 2013 | 10:54 AM EDT

Trade the Available Opportunities

  • The worst thing you can do is focus on market timing.

The bears were hoping for some gap-and-fade action but the fade only lasted for a few minutes before the dip-buyers pushed the market right back up. We have seen decent breadth -- especially on the NYSE, with precious metals, solar energy and biotechnology leading.

Solar energy has been the best momentum group for a while now and I continue to hold positions including JinkoSolar (JKS), Canadian Solar (CSIQ) and China Sunergy (SUNE). Tesla Motors (TSLA) is another momentum favorite and the stock is performing very well today as the hot money is chasing it aggressively.

Despite some weakness in the restaurant sector, shares of Noodles & Company (NDLS), which I mentioned on Friday as a Chipotle Mexican Grill (CMG) sympathy play are perking up today. My Stock of the Week is LightInTheBox (LITB). So far it isn't doing anything, but I really like the way that chart is developing. Watch that for a move through $17.75 on volume.

The worst thing you can do in this market right now is focus too much on market timing. Trade opportunities, such as those I outlined above, exist and if you stay focused on them, you can make some money. While I would like to see a market correction in order to create more opportunities I'm not going to waste my time betting on it when there is some other action to trade. We will have some weak action sooner or later, but we are better off focusing on what we can do right now. 


July 22, 2013 | 07:55 AM EDT

Calling a Top Remains a Useless Endeavor

  • Instead, just remain vigilant and react to the price action

"Life is 10% what happens to you and 90% how you react to it." --Charles R. Swindoll

Despite a lackluster earnings season so far, we kick off the week with the senior indices hovering at new highs. The Nasdaq is lagging due to the poor reports from Google (GOOG) and Microsoft (MSFT), but the broader market continues to press higher and shows few signs of worry or concern.

The bears are convinced that this market is going to fall apart at any moment. Of course, they have been saying that all year, and have been slaughtered as a result, but it isn't hard to understand their thinking. By most reasonable standards, this market is overdue for some downside action, and even most bulls concede that it would be healthy to see some better consolidation.

While the perception of many casual market observers is that this is a great trading market, this generally hasn't been the case. Traders feed on volatility, and we have had very little of that. The lack of volatility is even more apparent if you consider the fact that the majority of gains since the June low have come overnight. If you've bought the open and sold the close, you have made very little progress compared with those who have bought the close and sold the open the next morning.

In a market that has had a long run and is becoming overbought on light volume, the great temptation is to keep from trying to call a market top. That is especially so as we enter summer vacation season, which typically is weaker. The old adage about selling in May didn't work, but the bears are convinced that, at some point, the bulls will take a break and the selling will commence.

If I wanted to get attention, I would be writing about the horrid state of the fundamentals and technicals, and that the market is on verge of collapse. The problem is that the price action is doing nothing to confirm that sort of thinking. It is always easy to make flamboyant market-timing calls, but they are of no help to anyone if the timing is wrong.

I am absolutely convinced that, rather than try to anticipate a market top, the better approach is to just remain very vigilant and react to the price action as it shifts. Even though many stocks are extended and it is not easy to find setups, there are trades to be had if you keep on digging. 

The bottom line is that we need to focus on being opportunistic rather than dogmatic. I don't particularly care for the way this market is behaving, but that is irrelevant. What I have to do is keep on looking for ways to make money. One thing I know for sure is that predicting market tops has not been a good way to profit.

We're looking at another Monday morning gap, and you can bet the bears will be trying to short it once again. We're also set to see a flood of earnings this week, and if the numbers don't improve, it'll be tough slogging ahead. Stay on your toes and be ready to move quickly.

At the time of publication, Rev Shark had no positions in the stocks mentioned.

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