Hoping the Fed Shakes Things Up

 | Jul 30, 2013 | 4:20 PM EDT
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The market is seeing slowing momentum but it has underlying support and no real selling. Breadth was almost exactly even and volume light. That doesn't make for very exciting trading but a few individual stocks -- Facebook (FB), Gigamon (GIMO), E-Commerce China Dangdang (DANG), etc. -- are moving nicely. Plenty of folks doubt this market, but they still want some long exposure since corrections don't ever seem to occur these days.

If you have been looking for action and excitement, this market doesn't have much right now. But with the Fed meeting tomorrow, we are likely to see some better volatility. The bears are confident that talk of tapering the quantitative easing program is going to produce some selling pressure, but this market keeps doing a remarkable job of ignoring good reasons for selling.

I keep seeing more and more bearish predictions, which is understandable because this sort of action doesn't seem sustainable. On the other hand, lopsided moves to new highs that never seems to stop has defined the market all year. Here's hoping the Fed will shake things up a bit.

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

July 30, 2013 | 13:45 PM EDT

No-Traction Action

  • After a strong start, some stocks have slipped and fallen hard.

The market has been unable to gain traction today, and that's helping to produce a little selling pressure. A lot of folks have been chasing this market, but at the first sign of any weakness, they are going to lock in gains and step aside. We still have plenty of potential dip-buyers, but they may actually wait for a real dip at this point.

The most notable characteristic of the market action today is the large number of reversals after a strong start. For example, Herbalife (HLF) and Tesla Motors (TSLA) are both substantially off their early highs. When market players start looking for exits into strength rather than trying to chase, a higher level of caution is in order.

The tricky thing right now is that we have the Fed decision coming up tomorrow. The bears are hoping for more tapering talk, while the bulls are counting on some reassurance that the Fed is going to remain "accommodative" for some time to come. Since the market is somewhat extended and in need of a rest, the bears may have the edge in the way that the news is perceived. I suspect that some of the selling pressure we are seeing right now is the result of folks moving to the sidelines in front of the Fed.

It is very slow out there, and we are dipping lower. There isn't any major damage being done, but it sure isn't giving us much to do on a trading basis. I'm going to tighten up some stops and make sure things don't slip too much.

At the time of publication, DePorre was long FB, TSLA and HALO, but positions will change at any time.

July 30, 2013 | 10:39 AM EDT

Momentum Leaders Keep Rolling

  • Traders are chasing their favorites, but I'm watching the small-caps.

There are some quick reversals and tired action this morning, but we also have some sustained momentum in key names such as Facebook (FB), Apple (AAPL), Tesla Motors (TSLA), Celgene (CELG) and CommVault Systems (CVLT). There is still plenty of chasing as market players struggle to produce relative performance.

Breadth is solid at around 3,050 gainers to 1,900 decliners, and we have biotech, chips and now builders leading, while gold, steel, coal and commodities are the laggards. The Nasdaq-100 is leading, mainly because of Apple, but the index I'm watching most carefully is the Russell 2000 (IWM). If that weakens, that may be a sign that selling may start to broaden out.

I'm not finding much new to trade right now, and I'm trying to resist my inclination to sell down winners such as Tesla and Facebook. Sometimes you just have to keep digging and see what develops. One setup I'm keeping an eye on is Halozyme Therapeutics (HALO), which needs to move back over $8.50 to attract attention.

At the time of publication, DePorre was long FB, TSLA and HALO, but positions will change at any time.

July 30, 2013 | 8:05 AM EDT

The Tender Trap

  • It's not love; it's fear of a one-day crash.

"Worry does not empty tomorrow of its sorrow. It empties today of its strength." -- Corrie Ten Boom

One of the easiest traps for traders to fall into is to constantly be looking for reasons why the market can't continue to do what it has been doing for a while. Traders have a natural inclination to try to stay in front of the crowd and anticipate change. That means they are always looking for reversals, tops and bottoms.

What is often more productive is to look for reason why the market will continue to do what it has been doing. Why shouldn't the current trend continue? Is there any reason why we won't just continue to act in the same manner we have been for quite some time?

We all know that the market will undergo a correction sooner or later, but why should we anticipate that it will happen right now? The bears have had it wrong all year, so why should we think their timing is any better now?

There are a number of reasons why we should believe the market will continue to hold up well. First is that markets that are making new highs just don't suddenly fall apart and go straight down. Many market players fear the sudden crash, but crashes almost always occur after a substantial decline. When we are at the highs there is just too much emotional and psychological support. It is possible that some outside event like 9/11 could occur, but that is extremely rare and even 9/11 occurred while the market was already downtrending. 

Don't fear the one-day crash. More money has been lost worrying about it than has actually been lost in a real one. This market is not going to suddenly collapse without some warning.

Another reason we should continue to embrace this market is that there are so many money managers and market players who are lagging their benchmark indices and are anxious for relative performance. It has been extremely difficult for active managers to keep pace with the indices this year and hedge funds are badly lagging. It is a function of the one-way movement and V-shaped bounces that have driven us higher all year. There has been very little ebb and flow to the action, which is a great handicap to traders who look to buy the dips and sell the rips. You might sell the rips, but there have been so few dips that you are never able to reload long inventory.

The way this market has moved all year has created huge underlying support. The dip buyers have had only one real pullback this year and now they are forced to chase again as the market hovers near the highs. You can bet that the buyers are going to be quick to pounce if we ever do have a gap down open.

The bears are hoping that the Fed or the economic news later this week is going to be the catalyst for turning this market to the downside, but there is even better reason to believe that the news will just keep the trend going.

Stay reactive to the price action and stick with this trend even if it feels tired and extended. When a shift in the market occurs we will have time to adjust, but for now our focus should be on why things should continue to remain the way they have been.



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