Thanks for the Sell-Off

 | Sep 20, 2013 | 4:18 PM EDT
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Volume was light, but the S&P 500 gave back all of the gains of the surprise announcement by the FOMC not to taper on Wednesday. There were renewed concerns that tapering may not be far off, but we also have worries over the election in Germany and, more importantly, concerns about another debt-ceiling standoff in Congress. I'm not sure why anyone would worry about a government shutdown, but it did cause some jitters today.

Regardless of the reasons for the weakness, we need this sort of selling occasionally, especially with the frothy action that followed Ben Bernanke on Wednesday. This market needs to digest gains to set up again. The breakout move Wednesday didn't have a strong foundation and now we are retesting the breakout point, which is exactly what we need to strengthen the technical pattern.

The bears are going to focus on the fundamental issues mentioned above next week, but their work is cut out for them to keep this market down. The recent action has created a big supply of buyers who want in, and action like we are seeing today is exactly what they want. There are more bulls hoping for downside that they can buy than bulls that want a parabolic move.

Next week I'll be looking for a battle between the fundamental bears and the underinvested bulls. One of the best things about this market lately has been that individual stock-picking is working and I'll be looking for that to continue.

Have a great weekend. I'll see you on Monday.

Sept. 20, 2013 | 11:03 AM EDT

A Watchful Eye

  • Looking for buys but may have to wait until later in the day.

The trading week is wrapping up with some mild profit-taking. It has been a good one for the bulls and the quaint old notion of ringing the cash register in front of the weekend seems to be in play to some extent.

While breadth is running slightly negative the hot money is still chasing the hot momentum names. The Four Horseman -- Tesla (TSLA), Facebook (FB), Netflix (NFLX) and LinkedIn(LNKD) -- are doing quite well. Apple (AAPL) continues its bounce and Amazon (AMZN) continues to make new highs.

It is a bit more mixed in the small-cap names today, with some of the recent flyers, like FAB Universal (FU) and Eagle Bulk Shipping (EGLE), reversing. I added a little to Kandi Technologies (KNDI), which is a Chinese electric-car play. That is finally receiving the attention I thought it might get early as a sympathy play on TSLA.

I'm still looking for buys but may have to wait until later in the day. There are things l'd like to add, such as BioTelemetry (BEAT), NQ Mobile (NQ), Novadaq (NVDQ) andJinkoSolar (JKS), but I'm looking for better entry points to develop.

Sept. 20, 2013 | 08:14 AM EDT

No Entry

  • This market seldom experiences a natural ebb and flow.

Of all the hardships a person had to face none was more punishing than the simple act of waiting. --Khaled Hosseini

One of the biggest challenges of the market this year has been finding entry points. The action is so often lopsided and the pullbacks and corrections so shallow that we constantly have a crowd of underinvested bulls looking for a way to put money to work. 

This phenomena has resulted in rallies being hated and pullbacks never lasting for long. While it often seems that the market mood is overly complacent, it has been a good contrary indicator because of this big supply of underinvested bulls. 

I bring this up because the market is resting a bit after the big spike on the FOMC non-tapering news. Typically, we'd look for things to drift down as short termers exit and aggressive bears try to short overbought technical conditions. 

A pullback after the move we have had since the end of August seems reasonable and logical, but this market seldom seems to experience the natural ebb and flow that was so common in the old days. Backing and filling helps charts to consolidate and gives us new setups, but if you patiently wait for that to happen, you have often been left standing on the sidelines.

Success in this market has required perma-bull thinking. Weakness is always a buy -- not just eventually, but immediately. If you wait for charts to develop, you most likely end up chasing them to get on board.

Will it be different this time? Is it possible that the market could struggle for more than a day or two? We have the debt ceiling battle coming up in Congress, and the news from the Fed can't get any better than it already is. Perhaps some weak economic reports will push the bulls to anticipate even more quantitative easing, but the bigger danger seems to be good news that will raise the whole tapering issue again.

The good news about this market lately is that it has been rewarding stock-pickers. We have had a constantly flow of names acting well, even when the indices don't look great. It is nice to see non-correlated action in individual stocks and little concern about big-picture issues.

While the broader market looks like it may rest a bit longer, I'm going to aggressively look for new buys. Waiting for this market to come in has been one of the easiest mistakes you can make.



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