Down, but no Correction

 | Aug 09, 2013 | 4:11 PM EDT
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The most notable aspect of the market this past week wasn't that the major indices lost around 1% but that there continued to be pockets of aggressive speculation. While the big-picture bears moan about slow summer trading, the momentum bulls chased stocks with strong price action, Tesla (TSLA), Priceline (PCLN), LightInTheBox (LITB) and Qihoo 360 (QIHU). A number of good earnings reports gave the bulls opportunities.

While there was good action, it was narrower. The big question next week will be whether the end of earnings season combined with peak vacation time and little economic news will put buyers on the sidelines. We all know that it isn't a good idea to short a dull market, but when we've had the sort of run we've had this year, it shouldn't be surprising if the action drifts lower during a slow period.

I've been adamant about focusing on stock-picking rather than market-timing, which has worked well. At some point, we'll have the sort of correction that hits everything and doesn't leave any place to hide. But, so far, it isn't happening. Bearish anticipation continues to be a losing approach.

I suspect it will be harder to make progress next week, but we'll keep plugging along and looking for opportunities. Have a good weekend. I'll see you Monday.

Aug 9, 2013 | 10:48 AM EDT

Following My Own Advice

  • And staying focused on stock picking.

While the indices aren't doing much, the overall market refuses to rollover on aggressive speculation beneath the surface. Markets bounced back quickly from a weak open, but the flippers are hitting the strength and the momentum is losing steam. Breadth is slightly negative and slipping.

I'm trying to follow my own advice and stay focused on individual stocks. The best action is in Chinese names, as stock like Baidu (BIDU) and my recent stock of the week LightInTheBox (LITB) move higher. I have a couple of small Chinese stocks on my radar, China Automotive Systems (CAAS) and Kandi Technologies (KNDI), which are in the very hot auto-related group. Renewable Energy (REGI), a U.S.-based alternative fuel play, is trying to come out of a decent base, and I'm keeping a close eye on BioTelemetry (BEAT), which is consolidating after a very good earnings report.

I don't have much confidence in the indices now, but there is interesting trading if you dig. Just make sure you manage trades carefully and don't let them turn into "investments" if they start to slip.

It is going to be a very slow summer Friday, and one of these days the bears are going to take advantage.

Aug 9, 2013 | 7:40 AM EDT

Stay Focused on Individual Stocks

  • But make sure you manage individual positions quite closely.

Summer's lease hath all too short a date. --William Shakespeare

Typically during the summer there is talk about a summer rally developing out of the slow trading. This summer there has been little of that chatter since the indices have gone almost straight up since late June. In fact, the much more frequent question is whether a 'summer swoon' will develop as trading slows and momentum stalls.

I've been trying hard to not focus too much on market timing as it has been it a very easy way to be misled in a market that continues to trend in just one direction. Unfortunately, it is human nature to keep wondering how much longer this one-way action can last especially since there seems to be so many good reasons why it should start to falter.

The period during the last few weeks of August is particularly tricky because there are so few obvious catalyst.  The months of August and September are historically the weakest time of the year for the indices and August is peak vacation time for the folks on Wall Street and in Europe. Earnings season has ended, no key economic news is on the schedule and there is likely to be little talk from Fed members or central bankers.

The good news is that vacuums in this market tend to be filled by the bulls. When there are few catalyst is the default behavior is to buy rather than sell.  Money managers have been chasing this market all year and have been perpetually underinvested. When the market is meandering they tend to have a bullish bias, not because they are wildly optimistic but because it is the only way they feel they can catch up.

In this sort of environment I believe the best course of action is to stay focused on individual stocks, but make sure you manage individual positions quite closely just in case the long await pullback develops some downside momentum. We have had some softer action in momentum names this week. They did bounce back yesterday as Tesla (TSLA) went ballistic on its earnings, but there have been some signs of slowing momentum.

On the other hand, we still have nearly 300 stocks hitting new highs and you have some strong moves on earnings from stocks such as (PCLN), Ubiquiti Networks (UBNT), Noah Holdings (NOAH) and Tableau Software (DATA). Market players are still chasing strength and that is where the action is.

It is good time to keep an open mind and stay flexible. The dogmatic bears have missed out on a tremendous number of opportunities and sooner or later the perma-bulls are going to suffer when the dip buyers dry up and a pullback gains momentum.

Right now there are plenty of individual stocks acting well as the dog days of summer slowly sap the broader market of energy. Keep an eye out for a summer swoon, but don't be in a rush to embrace the idea. The money will be made by those who aren't obsessing on overall market direction.



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