Buyers Stand Pat

 | Aug 12, 2013 | 4:30 PM EDT
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It was one of the lightest-volume days of the year, and the indices barely budged, but the buyers under the surface still aren't going away. The only fear in this market is fear of not being long enough when we run again.

We had the routine dip-buying on a weak open and even managed to close near the highs of the day. Breadth improved steady and was around 3,000 gainers to 2,400 losers by the close. It wasn't very exciting, but it was interesting to see the speculative interest in China stocks. Some of the worst stocks of the group are moving as traders shake the bushes looking for something that hasn't moved yet.

I'd like to tell you that this action is indicative of something quite dramatic, but that simply isn't the case. We are just drifting around, and we could easily develop a trend in either direction. The bulls continue to have the edge, but there isn't anything about this action that suggests we are suddenly going to break one way or the other. We simply have to be patient and try to knock out some trades while waiting for developments.

The good news is that there are trades that are working. The China stocks I've been discussing are particularly lively, but we even have Apple (AAPL) acting like it did in the "old" days. Just keep on plugging away, and we'll see how things go.

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

August 12, 2013 | 1:35 PM EDT

Beware of Excess Negativity

  • When the action is slow, it's easy to start selling out of boredom.

We have slow, mixed action, but the underlying support remains quite impressive. Apple (AAPL) is doing a good job of boosting the indices, but it a mixed bag with LinkedIn (LNKD) and Netflix (NFLX) leading while Google (GOOG) and Tesla (TSLA) are lagging. Breadth is now positive, but leadership is in precious metals while biotechnology is getting hit with some profit-taking.

From a trading standpoint, I continue to have good success with China stocks I've mentioned lately, but it definitely feels like things are starting to narrow. That is partially a function of a slow market, but I'm keeping my eyes open for more pronounced profit-taking.

It is very easy to be overly negative in a slow environment, especially when you start selling out of boredom. I've sold a few things down too quickly for just that reason, so I'm going to go for walk to avoid micro-managing things that are working, like Noah Holdings (NOAH), Bio Telemetry (BEAT) and China Automotive Systems (CAAS).

August 12, 2013 | 10:39 AM EDT

Dip-Buyers Get to Work

  • Bulls are undaunted by a little early weakness.

We have standard Monday morning "buy the dip" action to kick off the week. The bulls have no fear of a little early weakness. In fact, they can hardly resist the impulse to rush in and buy.

We are well off the opening low, but that is now the key technical level for the day. If we retest it, the bears will push, but for now the issue is more about finding long exposure so you don't miss out once again.

Breadth is running slightly negative, and we have precious metals leading to the upside, and that isn't a great combination. But Apple (AAPL) is perking, and LinkedIn (LNKD), Chipotle Mexican Grill (CMG) and Krispy Kreme Doughnuts (KKD) are leading the momentum favorites. Tesla Motors (TSLA) was attacked on several fronts and is trying hard to shake it off, but it is into the earnings gap and may need some time.

China stocks, which I discussed in an article this weekend, are doing well. My stock of the week, Noah Holdings (NOAH), is up more than $1, and a number of others are showing good buying activity.

We'll see how well the dip-buyers hold up as the day progresses. They are still pushing and are looking for green. Betting against them has been a losing proposition.

August 12, 2013 | 8:10 AM EDT

Handle Positions With More Care

  • The overall market is not strong enough to bail us out of bad picks.

"All human errors are impatience, a premature breaking off of methodical procedure, an apparent fencing-in of what is apparently at issue." -- Franz Kafka

The market stumbled slightly last week, but there was some decent underlying support and some good speculative interest in small-caps and momentum stocks. That sets us up for the big question this week, which is whether slow August trading will drive some profit taking or will this market continue to confound the bears that have been looking for some significant downside since the first day of the year?

Betting against this market has consistently been a mistake, but common sense tells us that sooner or later we are going to have a correction. It is extremely tempting to keep anticipating some downside, but the pattern has been for the market to jump right back just when it looks like it might start to crack.

Even when we do have some slow action like last week, there has been some pretty good speculative action in individual stocks. Names like Tesla (TSLA) and Facebook (FB) have enticed the hot money and China-related stocks have been very active as traders look for action. Typically, this sort of action dries up quickly as the market shows signs of topping, but right now the traders are still hungry for long plays and we aren't seeing any major cracks in the momentum favorites.

Earnings season is now over, there isn't much economic news of significance coming up and it is peak vacation time for Wall Street. It is definitely a recipe for a dull market, which is supposed to be dangerous to short, but you have to wonder if the bulls may finally take a little break and let the market come in a bit.

One of the ironic things about this market is that it isn't only the bears rooting for some corrective action. All year long the bulls have been underinvested and struggling to put capital to work. Hedge funds are having a terrible year as they have consistently underperformed. The lack of downside volatility has robbed the active managers of one of their biggest advantages. It is the buy-and-hold crowd that has prospered the most and the only way the hedge-fund types can catch up is if the market produces some decent upside.

My main message for a while has been to forget the market timing and stick to stock picking while we wait for the price action to confirm that a real change in market character is occurring. I think it's wise to continue with that approach.  There is no reason to panic sell or to be aggressively bearish, but, on the other hand, there is some narrowing in the market action. Select stock picking is working, but positions need to be handled with increasing care as the overall market is not strong enough to bail us out of bad picks.

Summer trading can produce opportunities, but the slowness can also cause some frustration. There still is no reason to make the big, loud, market-timing call, but a little additional caution is in order as we see how things develop.

It is a slow Monday morning with a slight negative bias as precious metals show some early life.



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