A Healthy Pullback

 | Sep 23, 2013 | 4:26 PM EDT
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There was plenty of poor action today but some of the pressure on the leading momentum stocks relented and they closed well off their early lows. There was heavy pressure on key names, but the dip-buyers showed up and helped prevent downside momentum from building. It was still a poor day, with 2,350 gainers to 3,150 losers, but it could have easily developed into something much worse.

It is just a healthy pullback after a big run. It isn't a positive that all the Fed's "non-tapering" gains from last week have been given back, but we are back to an area of good support. As I said earlier today, I'm not particularly worried that we are undergoing a major shift in the market. We have just gotten a bit frothy lately and need to reset.

Probably the worst thing about the action today is that it hasn't produced much in the way of new setups. There are many pullbacks, but few that are enticing me to bottom-fish. If we flop around for a few more days, that is likely to change.

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

Sept. 23, 2013 | 1:07 PM EDT

The Market Beast Roars

  • And keeps us on our toes.

During the last couple of months, the indices have often understated the strength in individual stocks, particularly the momentum favorites. Today we are seeing the opposite. The indices are failing to reflect the aggressive selling in many stocks, particularly the momentum names.

Quite a few stocks have had frothy action lately, so it isn't too surprising that we are being hit with a day like this. The market beast never likes anyone to take it for granted for long, so it makes sure to surprise us once in a while to keep us on our toes.

The bigger question to consider is whether this is just another one of those blips that will be totally forgotten in a day or so or the start of something more severe. The bears will be focused on the upcoming political debate and the fact that the lack of tapering by the Fed may not be the huge positive it was initially thought to be.

At this point, I see no reason to conclude that a major top is forming. This is a routine pullback after a good run and I view it as a potential buying opportunity. It will be particularly interesting to see the close, but conditions are already bouncing back a bit. Facebook (FB), for example, is well off early lows.

I find it refreshing to see volatility like this, the sort of action that allows aggressive traders to outperform. This market has favored a buy-and-hold approach for a while but days like this makes one think that maybe that trading can pay off at times.

Sept. 23, 2013 | 10:35 AM EDT

Leadership Falters

  • Momentum screens are solid red.

The good news and big move from Apple (AAPL) isn't preventing more profit-taking from kicking in. Selling isn't aggressive so far, but it is steady and all of the Four Horsemen -- Facebook (FB), Tesla (TSLA), Netflix (NFLX) and LinkedIn (LNKD) -- are solidly red.

As I discussed in my opening post, when leadership names start to falter, it is an indication that individual stock-picking is losing its appeal. My momentum screens are solid red, so I'm a bit worried.

On the positive side, Sarepta (SRPT) is building on its strong action from Friday and Novadaq (NVDQ), which I mentioned Friday as well, is breaking out of a base on news that Intuitive Surgical (ISRG) has expanded use of its product in gall bladder surgery. Kandi Technologies (KNDI), the Chinese electric-car play, is also doing well on news.

I'm tightening up stops and I will be very careful about letting any of my positions drift down too much. I'd prefer to cut it and then rebuy higher, rather than risk a breakdown at this point.

It's poor action, and I don't' see any rush to jump in now.

Sept. 23, 2013 | 8:15 AM EDT

Stick to Stock-Picking

  • Big-picture arguments have been useless lately.

The right thing at the wrong time is the wrong thing. --Joshua Harris

The easiest way to be on the wrong side of the market is to try to time it based on big-picture, fundamental arguments. It is especially dangerous because it has been so easy to find bearish arguments for so long. There hasn't been a time in the last few years when you couldn't come up with a compelling bearish argument based on macro factors.

What is particularly fascinating is how big picture bears seem to think they can time the market with great precision. They like to believe that the market is suddenly going to appreciate and embrace their great wisdom at a precise time. They start short positions far too early and get squeezed when the market keeps running.

I bring this up because there are more big-picture issues than usual coming into play now. Foremost is the whole tapering issue, which jerked us around quite a bit last week. We had a euphoric response to the initial announcement that tapering would be delayed and then gave it all back as the market decided that maybe it wasn't so wonderful that our economy is so slow that the Fed has to hold off its very small cut back in bond-buying.

Tapering is going to remain the main issue for the market, but trying to time the market twists and turns based on it will be a challenge I don't even want to consider. We have the potential for Fed members to make comments at any time and the Fed has even said they may hold a press conference unrelated to its meetings to discuss making policy changes.

The other big macro issue likely to jerk us around is the debt ceiling debt. Again, there seems to be a standoff as politicians play a game of chicken. Last time we had the debt ceiling debate was last November and December. We bounced around a bit while negotiations took place but the resolution at the start of the year kicked off a massive rally.

In addition to domestic matters, we have the election in Germany, Chinese economic reports and the usual domestic economic reports to digest. I'm sure there will be bears who are ready to give us a very negative view of market conditions, especially since we have run up and are a bit extended now.

What has been most interesting about this market the last few months is how so many individual stocks have been acting well, even when the indices have been acting poorly. The folks who have stuck with things like Facebook (FB), Tesla (TSLA), Amazon (AMZN), and Qihoo 360 (QIHU) have done extremely well. It has been a market for stock-pickers.

Big-picture arguments and concerns have been practically useless lately. That can change, and when it does, we will see it reflected in the action of the stocks that have been leaders.

My best advice is to stay focused on the key stocks in this market and watch to see if they start to react, as a group, to big picture worries. If they remain uncorrelated to the indices then stick with stock-picking until that changes. There were many times in this market when stock-picking was practically useless because everything danced around to the latest headline. That has not been the case lately and that is the key to navigating this market.

In the early going, we have a slightly negative start indicated following Friday's profit-taking, and there is worry it could pick up momentum.

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