Solid Action All Around

 | Aug 18, 2014 | 4:33 PM EDT
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With the exception of the level of volume, it was an impressive day for the market by just about any measure. There was a big point gain, solid breadth, strong speculative action and hardly a dip. We gapped up and held steady, although the indices did trade flat for long periods. Traders were chasing speculative China "junk" such as China Finance Online (JRJC) and Sky-mobi (MOBI) and were also paying up for bigger-cap momentum names such as Google (GOOG), Netflix (NFLX) and Chipotle Mexican Grill (CMG).

If you are a short trying to call a top, you have to be feeling very discouraged, and if you are a bull and aren't fully invested, you have to work hard to put more capital to work. It certainly is strong action, but it isn't that easy to trade.

At this point the bulls have the momentum, and it is almost a holiday atmosphere. Probably the most significant develop is that the small-cap action is improving. The small-cap indices are still far behind their big brothers, but they were trying to play some catch-up today.

The challenge now is staying with the trend, even though you can find plenty of good reasons to start looking for tops. Top-calling is an easy game to play, but over the last few years the better approach has been to look for reasons to stay bullish.

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

August 18, 2014 | 12:49 PM ET

Embrace the Lack of Emotion

  • Many traders are still nostalgic for the old days.

While the overall market action is quite positive, what continues to be one of the most notable market themes is the lack of enthusiasm and excitement. This has been an issue for quite a while, with many comments over the past couple years about how the rally is hated.

This mood is now the new normal and a function of how trading focuses on deploying cheap capital in a systematic way now rather than individual stock picking. What used to cause the most excitement in the market was the action in individual stocks. We still have that to some degree with momentum names like Tesla and LinkedIn (LNKD), but it has been undermined by the way the big computer-driven funds put money to work. They help to create much of the momentum, but individual traders no longer seem to celebrate the hot stocks like they used to.

Another theme we are seeing today is the very strong underlying support. We have not had any substantial dips since the open and are hitting new intraday highs. The bears who tried to fade the Monday morning gap are having some problems once again.

Many traders would prefer more emotion and greater volatility, which is why they complain about this action so much. We no longer trade like we did prior to the Great Recession and many traders are still nostalgic for the old days.

I have some decent small-cap action on my screens and there doesn't seem to be much choice but to embrace it and stay bullish. One new position I've taken today is Mandalay Digital (MNDL) and I'll be looking to build it.

August 18, 2014 | 10:37 AM ET

Gotta Chase to Play

  • But that has been effective.

The early strength is holding up well and seems to be increasing the anxiety among the underinvested bulls once again.

Being left behind as the market runs straight up has been the biggest problem from many hedge funds the last couple years and they are experiencing that issue once again. The pattern of fast and easy recoveries simply is not changing, regardless of growing concerns about interest rates.

Breadth is very strong at close to 4-to-1 positive and the big-cap momentum names continue to move along with Tesla (TSLA) and Bitauto Holdings (BITA) leading.  Biotechnology and solar energy, which are favorite momentum groups, are showing good relative strength.

I'm trying to regain my feel for the market after being out and am not rushing to do too much in the early going. A few names on my radar right now include Sky-mobi (MOBI), DS Healthcare (DSKY), bluebirdo bio (BLUE), Tarena International (TEDU), ZELTIQ Aesthetics (ZLTQ), Steel Dynamics (STLD) and BioDelivery Sciences (BDSI). I added a little to a position in SunEdison (SUNE) and may add later depending on the close.

It is thin trading, but obviously quite strong and that can create some frustration if you working to put funds to work. You have to chase to play at this point, but that has been effective.

August 18, 2014 | 08:06 AM ET

Careful Stock-Picking Remains Key

  • It's been very difficult finding names with sustained momentum.

The more things change, the more they are the same. --Alphonse Karr

The bears were thinking that several factors would be enough to prevent another "V"-shaped bounce in the market -- geopolitical issues, a slow economy in Europe and concerns that the Federal Reserve may be less accommodative would be enough. However, they were proven wrong once again. The Nasdaq jumped 2.2% last week and right back at recent highs. Small-caps are still lagging badly, but there was plenty of straight-up action for the bulls to celebrate once again.

What the skeptics keep forgetting is that market players have been conditioned by years of quick recoveries. Once the market finds support, you'd better hurry and get in, or you will be left behind. There is no hesitance once the indices start to trend back upward.

The pattern over the last few weeks had been very similar to what we'd seen back in March. We saw one failed bounce that convinced many bears that it was different that time, but instead of gaining downside momentum the market found support and the bulls went to work.

Back in March we saw a four-day "V"-shaped bounce, and then another leg down -- and that is what the bears are again seeking. But it is going to be tricky as we head into the slowest two weeks of the year for the market. The end of August is prime vacation time on Wall Street, and it is going to be very slow as summer wraps up.

The crisis in Ukraine provided for a few market jitters last week, but they are being shrugged off again. The potential remains that this crisis will flare up once more, but the big news event this week is likely to be the economic policy conference in Jackson Hole, Wyo., which starts on Thursday. It was at this conference in 2010 that former Fed chief Ben Bernanke announced the outline of the second round of quantitative easing -- which helped kick off the market uptrend that has been in place ever since.

The bear's biggest hope is that the Fed is now preparing the way for eventual hikes on interest rates for U.S. Treasuries, but the problem is that Fed Chair Janet Yellen and her dovish compatriots refuse to say anything very concrete about rate hikes. Atlanta Fed President Dennis Lockhart summed up the view as a "whites of their eyes" approach to monetary policy.

Returning to market action, while the major indices look pretty good, the underlying moves have been mixed. The recent strength has been led by big-cap momentum names such as Tesla (TSLA), Netflix (NFLX), Chipotle (CMG) and Apple (AAPL). Small-caps have been problematic. The iShares Russell 2000 Index (IWM) has lagged badly and is still far off its July high. It is again a tale of two markets, but that has been the case for most of 2014.

The tricky thing about this market now isn't the technical condition of the major indices. It's in picking individual stocks. There are a handful of names with good momentum, but it has been very difficult to find the ones that have sustained momentum. A number of China names have been doing well -- but careful selection is the key.

We're seeing a standard Monday morning gap-up, which is hard to buy, but such moves have had a tendency to hold lately. The pattern has been a gap, a slight pullback and then a tight range the rest of the day. It is going to be a lower-volume week, but if we keep digging we should find some good trade candidates.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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