No Fear

 | Jul 26, 2013 | 4:12 PM EDT
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Once again, the indices breached support but immediately reversed to a new intraday high. Any bear who tries to press shorts into the selling pressure ends up as short-squeeze fodder.

The market demonstrated again the strength of the underlying support. Once it hit a low and turned back up, it kept running as the underinvested bulls jumped in out of fear of being left behind. There is simply no fear that the market is going to fall apart.

Many market players are rooting for downside, not because they are bearish, but because they are bullish and want to buy. The market does what it does best and causes the most frustration by just creeping higher with no easy entries.

Although it did bounce strongly, breadth was poor, but that was offset to a great degree by more than 200 new highs and plenty of strong momentum in a wide group of stocks. If you just look at some of the liquid big-cap momentum names, like Tesla (TSLA), LinkedIn (LNKD), Celgene (CELG), Chipotle (CMG), Alliance Fiber Optic Products (AFOP) and Amazon (AMZN), it looks downright frothy.

Today was another good example of why I keep saying not to focus on market timing but stick to picking individual stocks that are still running. It may not be easy to find good entries, but it sure beats trying to call a top.

Have a great weekend. I'll see you on Monday.

July 26, 2013 | 10:35 AM EDT

I Want Kandi

  • Shares of the Chinese maker of electric cars are rolling.

The dip buyers are trying to battle back from the gap-down open but it is a summer Friday and they may not have enough energy, especially since last night's earnings reports were mixed. Starbucks (SBUX) is running but Amazon (AMZN) is doing little and analysts issued a number of downgrades.

Momentum has been slowing all week, but we still haven't seen that much consolidation. Stocks need more rest and it wouldn't hurt if the bulls lost some confidence. I keep hearing how wonderful this market is -- the sort of talk that makes me think about some contrary strategy.

Chasing big moves on earnings has not been working very well but I do want to add to Facebook (FB) as it digests yesterday's gains. I believe this is going to be a go-to name for momentum players and I'll be looking to trade the volatility.

Speaking of momentum stocks, Tesla (TSLA) continues to plug along as more positive coverage hits. This is a good example of a go-to name; the dips have consistently been buys and I expect that to continue.

I started a position this morning in Kandi Technologies (KNDI), sometimes referred to as China's TSLA. While it isn't producing luxury vehicles, it is rolling out a variety of low-cost electric vehicles. The stock is up more than 8% to $5.22 this morning, attempting to bounce over its 50-day simple moving average on good volume. I'll be looking to add above $5.30.

July 26, 2013 | 8:10 AM EDT

Ignore the Market Timers

  • Stick with the trend as long as you can.

The right thing at the wrong time is the wrong thing. --Joshua Harris

Good earnings reports, particularly Facebook (FB), boosted the market Thursday just as it looked ready to pause and pull back. It was the best set of earnings so far this season, but last night we had a mixed bag again and selling pressure is kicking in.

The bears are growing louder and increasingly impatient. They are convinced that this market is due for a meaningful correction and they have no shortage of arguments, both fundamental and technical, to back them up.

The bears' big problem is that they have been warning us all year that the end is near. In fact, I recall a well-known bear trying to fade the gap up on the first trading day of the year after the fiscal cliff issue was settled. He has been fighting the market ever since and the arguments have remained largely the same.

If you stick with a directional call long enough, you will eventually get it right, and if you loudly proclaim victory, some folks will be fooled into thinking you made a great call. The key is to make sure that no one remembers the fact that you first made your prediction long ago and are sitting on huge unrealized losses.

Bears that play this game have little choice but to stick with their position until it finally works. In fact, they need to double down and be even more shrill to ensure that folks forget how poorly timed their market-timing calls have been.

One of the ironies of this chorus of bears is that they help to create the "climb the wall of worry" action that keeps the market running. The main dynamics driving this market is a continued squeeze of the bears and perpetually underinvested bulls that constantly chase the market. The hunt for relative performance has kept a bid under the market all year.

My advice has been to ignore the market timers and stick with the trend as long as you can. When the price action shifts, that will be the time to be bearish. Too many people try too hard to be the hero who predicts the exact moment the market turns. It may be an interesting intellectual game, but it is a very ineffective way to trade. If you focus too much on timing, you miss short-term gains and will not be holding the individual stocks that are performing well.

Rather than try to call the top, focus on padding gains so that there is a cushion when the turn comes. You will give back some profits, but if you aggressively ride a trend, you should still be far ahead of the game. The key is to be quick to reposition when market conditions actually change.

This morning we have a little softness out there as Amazon (AMZN) failed to surprise and some travel-related stocks were hit by a poor repot from Expedia (EXPE).

It is a summer Friday, so it is going to be slow. I'm going to focus on finding a few good trades and I will manage positions tightly while the market timers keep making useless predictions.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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