A Day of Rest for the Market

 | Sep 12, 2013 | 4:33 PM EDT
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It was a day of rest after a big run over the last seven days. That is exactly what we need, but the bears are already saying that it is the beginning of the end and we had better be ready for substantial downside.

Of course, the bears always say that but they have a bit more credibility when there's poor breadth and leading stocks are hit by profit-taking. We have big gains to protect and there has been so little weakness lately it makes sense that some folks are ringing the cash register. But nothing has occurred yet to signal that a major change in the market action is occurring.

What bothers me most about the market is how slow the action has been. It is downright boring. Many stocks are just drifting around aimlessly and the pockets of momentum are shrinking. I'm chalking it up to the need for a rest and I will maintain a bullish bias.

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

Sept. 12, 2013 | 2:02 PM EDT

Going Zero to 60 in Five Seconds

  • A skill all traders should master.

The indices are flat, breadth is slipping and trading is painfully slow. After the run we've had, this sort of action is not only unsurprising but downright healthy. We need time for flippers to exit and new holders to move in. That is what consolidation is all about.

It is important to remember on days like this that good trading is just as much about what you don't do as it is about what moves you do make. Traders need to master the skill of staying patient and then moving quickly and decisively when opportunities arise. 

Aggressive traders often err on the side of doing too much and feel like they have to be doing something every minute. But as Jesse Livermore once said: "It never was my thinking that made big money for me. It was always my sitting."

Sitting doesn't mean doing nothing. You always have to be looking for new opportunities and, more importantly, you have to maintain a mindset that allows you to shift into active mode when things change. Going for zero to 60 in five seconds isn't easy, but it is a skill you should cultivate to be an accomplished trader.

Sept. 12, 2013 | 11:06 AM EDT

Churning, Churning, Churning

  • The dip-buyers have jumped in but aren't pushing too hard.

There's churning action with a slight negative bias to start the trading day. The dip-buyers have jumped in but they aren't pushing too hard and I wouldn't be surprised to see the indices roll over again.

Breadth is running a bit soft at about 2,300 gainers to 2,700 losers and nothing much is standing out as far as sector strength. Momentum names are mixed. Overall, it looks like run-of-the-mill consolidation after a good run. There is no real selling anxiety and we have already seen signs of the stubborn underlying support.

I don't have a whole lot going on. Facebook (FB) is my favorite momentum name presently and that continues to act well. I have my eye on a few things I'd like to add but there isn't enough energy to entice me. I either want to see lower-volume pullbacks to support or bigger-volume breakouts through resistance. Right now, we are in the middle zone.

'Four Horsemen' Gallop Past Apple

  • Watch them closely to interpret market health.

"Outlined against a blue, gray October sky the Four Horsemen rode again. In dramatic lore they are known as famine, pestilence, destruction and death. These are only aliases." --Grantland Rice

The market did an excellent job Wednesday of ignoring the weakness in Apple (AAPL) and continuing its upward trek. While AAPL still has a significant impact on the Nasdaq due to its weighting, it has little impact on overall market sentiment these days. 

For a while during the last few years, AAPL was the most important stock in the market, but now it is just another name. It is a trajectory similar to what Microsoft (MSFT) went through years ago as it became a more mature company.

Today, if we want to measure overall market sentiment we need to look at the new Four Horsemen. They are Facebook (FB), Tesla (TSLA), Netflix (NFLX) and LinkedIn (LNKD). Those are the names that are at the top of the momentum list. If you watch them closely, you will have a good feel for the overall health of the market. When they start to struggle it will be an indication that it's time to be more cautious; when they are performing well it will be a good idea to stay bullish.

Of course, staying bullish has been a pretty good idea all year long and it isn't changing right now. The market is no longer concerned about Syria, although that could still cause some volatility. And worry over tapering has cooled off after the mediocre jobs report. The stronger economic news out of China, however, and other signs of strengthening are probably enough to push the Fed to start some cut backs to its bond buying programs.

The biggest challenge of trading this market is that it seldom seems to take a rest. If you try to employ the old trading strategy of 'buying the dips and selling the rips', you will have some problems. There are so few dips of any magnitude. If you sell into strength, it can be extremely difficult to put money back to work.

As I've noted a number of times, market rallies these days are seldom greeted with the sort of excitement we used to see before the Great Recession. Market players seldom seem to fully embrace the strength and go along simply because they feel they have no choice. They may be bullish, but they are not overly optimistic. We have a slower start this morning but that has seldom been a problem for this market as the dip buyers seldom wait for red before they jump in.

I see that one of the Four Horseman, NFLX, was downgraded by Morgan Stanley but another one, FB, is running hot again following comments by CEO Mark Zuckerberg.  

Stay opportunistic, and don't let the glory-seeking market timers mess with your mind. There are trades to be had, and we just have to keep digging to find them.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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