Nerves Kept Buyers in Check

 | Sep 27, 2013 | 4:00 PM EDT
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The market was set up well for a bounce, but buyers were kept on hold thanks to nervousness over the budget debate in Washington and comments from the Bank of England about the end of quantitative easing.

The market was oversold after it suffered its longest losing streak of the year, and we had the potential for some end-of-the-quarter window dressing, but the dip buyers just couldn't get it going. Still, it wasn't as bad as it looked. Some good buying persisted in key leadership names such as Facebook (FB), Amazon (AMZN), Tesla (TSLA) and so on. In addition, the small-cap indices have held up particularly well, and good speculative action is still taking place in such groups as solar energy, biotechnology and China-related names.

The U.S. political debate will continue to drive the indices next week, but even though this has been the longest pullback of the year, a remarkable number of individual stocks have continued to act well. Market players aren't showing much fear at all, something that the contrarians will tell us is a very bad sign.

My game plan is to stick with the individual stock-picking that continues to work well. The big-picture concerns don't seem to be impacting that much at this point, but that can always change. Next week has potential for a relief rally once Congress makes the inevitable deal. Don't forgot what happened back on the first trading day of 2013 after a deal was struck: The market went straight up for weeks. I don't think we'll see a move like that again, but there is definitely potential for a good-sized bounce.

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

Sept. 27, 2013 | 10:30 AM EDT

A Little Selling Isn't Bad

  • I'd like to see my favorites come in a bit more.

After a weak bounce yesterday, stocks are stumbling this morning and have already taken out recent lows. The SPDR S&P 500 (SPY) is quickly approaching key support around the $168 level, but it has gone down in almost a straight line and is a bit oversold. If this continues, the setup for a bounce next week will coincide with some sort of political resolution in Washington.

After acting well this week, leading stocks are struggling today and it looks like money managers are locking in gains rather than marking up. My big-cap momentum list is 100% red.

I mentioned the solar energy group a couple of days ago as the leading speculative group, and it has stayed hot. I'm often surprised by how a group will continue to run well after it first shows up on my radar screens. It's a good example of a herd mentality and how the market is inefficient when it comes to the hot speculative groups. I have sold down positions but I am still long JinkoSolar (JKS), JA Solar (JASO) and Yingli (YGE) in the group.

One of my favorite sectors right now is medical devices and I added to Novadaq (NVDQ) this morning and have been building a position in BioTelemetry (BEAT).

I'd like to see other favorites come in a bit but, so far, the pullbacks are shallow. A little selling isn't at all bad.

Sept. 27, 2013 | 8:03 AM EDT

Still Plenty of Money to Be Made

  • Even as the indices struggle, individual names continue to do well

If the problem can be solved why worry? If the problem cannot be solved worrying will do you no good. --Santideva

The market was due for a bounce and managed a weak one Thursday, but it's rolling over again Friday morning after Bank of England Governor Mark Carney said he saw no need for quantitative easing in the U.K. This, of course, brings up the whole issue of when the Federal Reserve will start tapering in the U.S.

In addition, there seems to be nervousness over the political debate in Washington as we go down to the wire. The political problems are never resolved until the very last minute anyway, so we shouldn't be surprised. But this market had been quite sanguine about this issue so far, and now it seems to think that maybe there is some reason for concern.

Those are the negatives. The big positives are that the market is still reading as oversold, and it's ripe for a further bounce. It is the also end of the quarter, with the attendant likelihood of rampant window dressing, and that will only help the bullish case. That doesn't mean the indices can't go down, but we should see efforts to boost leading stocks such as Facebook and Tesla as we close the books on the third quarter.

We need to watch two key market themes right now. First is that individual stock-picking is still working quite well. A good number of stocks are ignoring the indices and are moving in uncorrelated fashion. We're seeing some strong leadership, and there continues to be good speculative action in small-caps. The action in individual stocks is not at all suggestive that the market is in trouble.

On the other hand, the action in the indices is problematic. This is the longest losing streak of 2013, and we have seen a number of negative intraday turns lately. It is the sort of action we had very rarely seen this year, and it seems to be indicating a change in character.

These two themes seem incompatible, but they are probably a function of end-of-the-quarter markups and fund managers' chase for relative performance. Fund managers actually now have a rare opportunity to catch up with the indices by focusing on good stock-picking. A market with some strong pockets of momentum, while the indices struggle, offers an ideal way to start catching up with benchmark indices.

This morning's open is shaping up to be weak, but I'm looking for quarter-end pressures to provide some support and deliver a bounce attempt. Some managers may end up moving to lock in gains as the quarter winds down, but I'm looking for at least one more try to run them up before they close the books.

Stay selective with your stock-picking and keep stops tight, and you should be OK. This market is showing some signs of stress, but until individual stocks start to falter, there will be money to be made on the long side.

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