Middle of a Zone

 | Jul 23, 2013 | 4:27 PM EDT
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The indices continue to hold up well but momentum has been slowing to the point of standing still. Opening strength this morning was sold but the dip-buyers bounced for a while before a finish on the weak side. Breadth remains positive primarily due to small-cap speculation, but there are not many pockets of hot action to be found.

What is difficult is that we are in that middle zone of action where there is enough strength to prevent effective shorting but not enough upside movement to make chasing worthwhile. The bears view this sort of pause as a warning sign of topping but there still isn't any negative price action to confirm that view.

Earnings have not done much to liven things up but maybe Apple (AAPL) can give us some action. A couple of things that worried me a bit today was weakness in biotechnology and the lack of upside in big-cap momentum names like Google (GOOG), Tesla (TSLA) and Chipotle (CMG).

The bulls will tell us that the market is just resting and that is a healthy thing. So far, there isn't anything to prove otherwise.

Let's see what happens with AAPL.

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

July 23, 2013 | 2:07 PM EDT

Downright Bored

  • This market is just too slow to do much.

The slow, steady grind higher continues. While it is impressive how well the bulls continue to support this market, the action is downright boring. Breadth is positive and some small-caps are breaking to new highs, but there is little happening in the liquid big-caps. Also there is weakness in the biotechnology sector that, along with solar energy, has been one of the best groups in the market.

Given the lackluster earnings reports, this action shows how inept the bears have become. They have had bad news to work with and can barely manage to put the market in the red for a couple of hours.

It is going to be particularly interesting to see the Apple (AAPL) report tonight. A year ago it was the most important earnings report of the quarter, but these days AAPL is being shunned by hot money traders and even value players don't seem overly optimistic about it.

For a number of years AAPL was notorious for low-balling its guidance, but these days there isn't any dramatically higher whisper number. The stock may actually rally on a minor beat if forward guidance is solid. I'm not sure if AAPL will have that much overall market impact, but a strong report could help keep this extended market become more extended.

I just hope that AAPL produces some excitement that spreads to the broader market because this market is just too slow to do much.

July 23, 2013 | 10:55 AM EDT

Turning More Cautious

  • Even perma-bulls are ready for a rest.

There's gap-and-fade action to start the day, but what is most notable about this market is its lack of energy. Despite nearly 400 new highs and positive breadth, it feels like the bulls are forcing things. The right move has been endless buying, but even some perma-bulls wonder when we will get a rest.

This morning I was struck by the number of technicians calling for a market top. Dick Arms, Jeff Saut and John Hussman, for example, are all extremely bearish. Of course, contrarians like Doug Kass have been betting against this market for a while, but even some momentum players are turning a bit more cautious.

While I find it interesting to read the opinions of the market timers, I am sticking with my approach, which is not to turn negative on the market until there is actual negative price action. The anticipatory approach has been a disaster for the bears and just because they have been wrong for a long time, doesn't make me think that we are on the brink of falling apart.

Even though I'm not anticipating a top, I sure wouldn't mind weakness to shake things up and give us new opportunities. Things I'm trading this morning include Himax (HIMX), LightInTheBox (LITB) and China Automotive Systems (CAAS). The way this market is moving, there aren't many new setups to buy, but that doesn't mean it is going to correct.

July 23, 2013 | 8:22 AM EDT

A Darwinian Market

  • Where those most responsive to change have the advantage.

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. --Charles Darwin

The great benefit of being an active trader is the ability to profit as market conditions change. Market players who are most responsive to change have a great advantage. Because of this, traders are always trying to anticipate what will happen next.

Anticipating change is usually positive behavior but in this market, it is a handicap. Those who try to stay step ahead of everyone else by moving quickly end up on the wrong side of the market.

This action creates a lot of frustration for many market players. The advantages of active trading are undermined by a market that never produces any notable volatility. In fact, anticipating volatility is likely to leave you underinvested and poorly positioned. We all know that the market will shift at some point and we'll have a correction so we need to be vigilant and responsive but this slow plod higher every day is going to wear everyone out. There isn't anything else to do but keep digging for buys and hope the momentum doesn't fizzle quickly.

I heard a number of comments yesterday that the market looks tired. Given the mediocre volume and minor movements in the indices, that sounds logical, but I suspect they are probably projecting their frustration. They want the market to do something different and saying that it is tried is just another way of hoping that a change is coming.

We are in the heart of earnings season and it continues to be less than stellar. Netflix (NFLX) is the latest technology stock to disappoint but Apple's (AAPL) report tonight is likely to have the most impact. Expectations for AAPL are low but the stock is in a precarious position technically and it is going to be very interesting to see the reaction.

Other than the lopsided movement to the upside, the most notable characteristic of this market is that bad news has had no impact. Earnings haven't slowed things down, weakness in housing is being shrugged off and the bears can't seem to spin anything in their direction. Technically, the fact that we are overbought and extended has been ignored as well.

The name of the game is to just keep plugging along and stick with the trend. You aren't going to make any money averaging into shorts right now, so you might as well try to catch some long plays. It is not an easy market, especially if you are a pessimist, but there are trades if we dig.

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