Rooting for Weakness

 | Aug 14, 2013 | 4:22 PM EDT
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Despite more comments from Fed members and continued strength in Apple (AAPL), it was a lackluster day of trading. The sellers weren't particularly aggressive but there weren't any good bounce attempts like we had yesterday. Breadth was weak and retailers, homebuilders, chips and drugmakers struggled.

The bulls call it much needed consolidation, while the bears proclaim it is the beginning of the end of this uptrend. I still give the bulls the benefit of the doubt since we have not yet seen any real technical damage and we are obviously in the midst of slow summer trading.

What worries me most is the lack of leadership. There's attractive trading in speculative "junk," something that often occurs in later stages of a bull market.

The weak close and the limited pockets of momentum make me more defensive, but I've been rooting for weakness for a while as it's necessary for a healthier market ahead. Further downside would not be a bad thing, as finding good setups and decent values has become extremely difficult.

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

Aug 14, 2013 | 1:43 PM EDT

Don't Toss This 'Junk'

  • I like the speculative action in these names.

A combination of profit-taking and a rotation into Apple (AAPL) is putting pressure on the indices, but plenty of underlying support is keeping the downside contained. Momentum names like Tesla (TSLA), Google (GOOG), Chipotle (CMG), Amazon (AMZN), LinkedIn (LNKD) and Cree (CREE) are taking hits as the hot money embraces the mighty AAPL once again. AAPL is a stock that they love to love and it is attracting the hot money that enjoys nothing more than squeezing the skeptics.

I've been a bit more cautious today and have sold down some positions, but I continue to like the speculative action in the China "junk" names. Cleantech (CLNT), which I highlighted in my column Saturday, had a blowout earnings report. It is trading around $7.35 and expects to earn close to $3 per share for the full year.

Another China stock that is popping up on the speculative radar is China Techfaith Wireless (CNTF). An analyst at Wedge just put out a note saying that this stock, which is trading around $1.85, has nearly $5 per share of cash. Watch for some crazy action going into the close.

When "junk" names like this get hot the bears start telling us that it is a sign of a top. That might be the case, but aggressively trading them in the short term can be quite lucrative. These aren't plays you hold for the long term, but they sure can make big moves very fast.

Aug 14, 2013 | 10:17 AM EDT

Slow, Summer Trading

  • The dip-buyers are looking for action.

Fed comments bailed out the market yesterday, but there isn't anything enticing dip-buyers today. Apple (AAPL) excitement is waning and breadth is slipping into the red. Support remains, and you can see dip-buyers looking for action, but it's slow summer trading.

There isn't much clear leadership. AAPL has been the best-performing big-cap lately, but most of the other strength has come in smaller, speculative names like LightInTheBox (LITB) and JinkoSolar (JKS).

While I've maintained a bullish bias as stocks continue to do a good job of holding support, I've been rooting for downside because I believe it would give us better trading during the slowness that is likely to persist for the next few weeks. It is much tougher to trade an extended market aggressively as it slowly becomes more extended compared to a market that dips back to support levels.

I haven't made any significant moves this morning, but I'm watching Himax (HIMX) as it runs into earnings tonight.

Aug 14, 2013 | 8:29 AM EDT

The Arrogance of the Bears

  • Does it make sense to believe the market will embrace their logic?

Our world needs less gurus, and more teachers. Gurus are about helping themselves become successful. Teachers are about helping others become successful. --Joseph C. Kunz Jr.

Despite better-than-expected economic news out of Europe, we have a quiet start this morning. The bears are growing louder but they were burned yesterday by Fed comments about the start of tapering being delayed.

The bear's biggest problem is that they think that they can time market turns based on big-picture fundamental arguments. They keep producing long lists of negatives that they are certain will be justification for lower prices, but they consistently overlook the most important issue of all, which is the price action.

What is surprising is that many of the bears are arrogant enough to believe that the market is suddenly going to appreciate their compelling arguments and react immediately. There is nothing wrong with developing a market thesis, but does it make sense to believe that the market is going to suddenly embrace their logic and react just because they have formulated a theory?

To get attention, many pundits come up with dramatic market predictions but without precision to their timing, the calls are downright dangerous. Unfortunately, it doesn't stop the folks who play this game. They keep making predictions and they will get it right eventually, even though they will have massive losses by the time the market finally turns.

Making short-term market calls based on big-picture economic arguments is illogical, but it has more to do with ego than anything else does. Folks who do this seem to believe that the market is wrong and after it reflects on its behavior, it will suddenly appreciate their arguments and immediately reverse.

Why not wait for price action to confirm bearish theories? If you have confirmation from the market first, it reduces the risk greatly. The problem is that they want the glory of calling the exact top. They want to claim that they called the top even though they have been calling the top all year.

What bothers me most about this game is that it hurts individual investors who are swayed by it. The opportunity cost of sitting on the sidelines while the market continues to trend upward is tremendous. If you forgot the market timing and just built up your portfolio, you'd be far ahead of the game when a turn actually hits.

Unfortunately, the media reinforces this behavior. It provides a platform for gurus to spout theories and ignore folks who ignorantly follow the trend and make money. Bulls are almost always perceived as having less intellectual rigor than bears, even when they are racking up superior gains.

One day this market is going to take a hit and you can be sure the bears will be on parade touting their prescience. We all know that the market will eventually have a rough patch, but the timing will make money. Providing a list of big-picture negatives isn't a very good timing device.

It's quiet, but we have action from Deere (DE) and Apple (AAPL), and you can be sure that the dip buyers are still looking for another chance like yesterday.

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