Good, Old-Fashioned Momentum

 | Sep 07, 2012 | 2:31 PM EDT  | Comments
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Stock quotes in this article:

hlss

,

pphm

,

grow

,

hcii

,

jva

We have a very deceptive day of action today. It is much stronger under the surface than the indices are showing.

In particular there is strength in big banks such as Wells Fargo (WFC), Bank of America (BAC), SunTrust (STI) and Morgan Stanley (MS) and there is good buying in some of the big-cap momentum favorites such as Pricline.com (PCLN), Amazon.com (AMZN), Alexion Pharma (ALXN), Apple (AAPL), etc. Breadth is very strong at about 3,300 gainers to 2,000 decliners, which is impressive for a market where the indices are doing nothing.

The explanation for this is pretty simple. It is just good, old-fashioned momentum. When we have a day like yesterday it creates performance anxiety and a big supply of folks who are sick over missing out. They want in and are willing to pay up. The pain of missing out blinds them to the fact that maybe some of these stocks aren't set up that well.

I often find that it helps me to think about this action as if it was a Ponzi Scheme. There may not be any legitimate basis for some stocks to go higher, but as long as there is a supply of buyers you can ride the momentum. It doesn't pay to be overly concerned about the fundamentals.But when things turn, you better be ready to move quickly because momentum tends to cut both ways. Things that go up fast come down fast.

I continue to dink around with long trades today.

Home Loan Servicing Solution (HLSS), which I mentioned earlier, is plodding along well and I'm finding some small names of interest like Peregrine Pharma (PPHM), U.S. Global Investors (GROW), Homeowners Choice (HCII) and Coffee Holding (JVA). It would be nice if we had some resets to give us a bigger supply of ideas, but this market simply doesn't seem to work that way any more.

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