What Shutdown?

 | Oct 01, 2013 | 4:31 PM EDT
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The market totally ignored the hysterical reporting about how a government shutdown would destroy the economy and rolled up decent gains today. The indices didn't even fully reflect how strong the action was. Look at the iShares Russell 2000 (IWM) if you really want to see what is going on. The small-cap index hit a new all-time high, but many of the big-cap momentum names racked up excellent gains as well.

All year long, we have had a situation where underinvested bulls are forced to chase a market that never stays down for long. Even though the bears have these very insightful and compelling arguments, it just hasn't mattered -- a slow economy, tapering, a recession in Europe, rising interest rates and a government shutdown. It's irrelevant to a market that keeps plugging away as market players continue to chase performance.

The bears will tell us that this sort of positive action can't last much longer. There are major problems and one of these days they are going to hit hard.

Yes, that is probably true. But that was also true six months ago. If you spend your time dwelling on what can go wrong you, will miss good opportunities. The worst thing you can do in this market is to keep anticipating that something is going to go wrong.

I'm not suggesting you be blithely bullish and not worry about anything. But stick with the price action as long as you can and you can make money. There are good opportunities for anyone who isn't so dogmatic that they refuse to even consider longs.

It was a surprisingly good day today even for those who were bullish. It might shift very soon, but let's worry about it when it happens rather than just sit on the sidelines and let things pass you by.

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

Once Again, Stocks Scramble up the Wall of Worry

  • The market is performing well, and we need to embrace that.

Oct. 01, 2013 | 1:02 PM EDT

Despite the sensationalist reporting, the nattering nabobs of negativity are unable to hurt the market Tuesday. The reporting has actually helped to create a "climbing the wall of worry" dynamic. Market players hesitate because of all the doom-and-gloom reporting, but when the indices continue moving up, they inch into positions. That, in turn, causes the market to move up further, which leads to more anxiety over being left out -- and more buying. This sort of action has been a persistent characteristic of the market all year.

The bottom line right now is that stocks are acting extremely well, no real concern is being reflected over the government shutdown. If you have been obsessing over the big-picture issues, you are likely missing out on some excellent action.

One of the things that's probably helping the action today is that it's the first day of a new quarter, and there have been trends toward inflows into equity funds. Contributions to retirement plans and mutual funds are put to work immediately, as well.

Whatever the reasons may be for the strength, the important thing we need to do is embrace the fact that many stocks are performing well. It is always easy to come up with negative arguments, but it can be much more difficult to keep finding reasons to stick with what is working. Too often we try to stay ahead of the herd by being overly anticipatory, and that can cause us to exit prematurely even though things are trending quite nicely.

Bitauto (BITA), my stock of the week, is breaking out nicely today, and there are plenty of others like it. My biggest regret is not being more bullish with some of these small-cap names, but I'll keep looking for entries and will continue to ignore the pundits who think the government shutdown is a negative for the market.

Oct. 01, 2013 | 10:22 AM EDT

Ignore All the Yammering

  • And stay focused on price action instead.

There was squeeze action at the open as the bulls took advantage of the media hysteria over the government shutdown. Perhaps it is a bit too easy to be a contrarian when there is such a frenzy over a political matter, but buyers seem determined to ignore it.

One positive the bulls have going for them is that the indices have been under pressure for nearly two weeks and have decent support. It is a good position technically for a bounce, but even if momentum doesn't build, dip-buying support is likely to prevent another down leg in the near term.

Breadth is healthy at around two gainers for every decliner, and we have good sector strength in biotechnology and solar energy again, as well as in oil, retail and chips. Precious metals are the big laggards. The big-cap momentum names are mixed with Google (GOOG), Netflix (NFLX) and Apple (AAPL) leading, while Facebook (FB) and Tesla (TSLA) pull back a bit.

Small-caps have been leading lately and I'm staying focused on some favorites. Solar names JinkoSolar (JKS), JA Solar (JASO) and Yingli (YGE) are a bit extended so I have been trimming them. But I like the way BioTelemetry (BEAT), BitAuto (BITA), Immunomedics (IMMU), Zhone Technologies (ZHNE) and Century Casinos (CNTY) are developing. I'm ready to add when they start exhibiting more energy.

I'm working hard to ignore all the yammering about the big picture and I'm staying focused on price action. All you really need to know is that it isn't bad.

Oct. 01, 2013 | 8:01 AM EDT

Market Fears No Shutdown

  • While the media panics, there are many pockets of strength.

A government shutdown will endanger the entire U.S. economy and have lingering disastrous effects. -- Press release from the International Brotherhood of Teamsters.

While the media is downright giddy with delight over the government shutdown, the market is shrugging it off and attracting buyers. 

The news media is full of dire predictions of the negative fallout, but the market has been selling off for two weeks and has already discounted the impact to some degree. This crisis is more of a media event than anything else right now and our job will be to find the best way to navigate this as it plays out.

Yesterday was saw some clear signs that the dip buyers were ready to start jumping in as things pulled back. Even though we closed weak, breadth improved sharply from early in the day, small-caps led and most stocks finished well off their early lows. There were few signs of panic and no rush for the exits. It probably helped that it was the last day of the quarter, but there is no disputing that there continues to be underlying support.

One of the main reasons I'm not overly concerned about this market is that there are so many pockets of strength and plenty of speculative action. Groups like biotechnology, solar energy and China-related continue to trade well and you can see the hot money moving around, looking for new opportunities. While the indices have been weak for a while, the action under the surface continues to be quite good. It's a very different market when you focus on individual stocks rather than indices.

Does this government shutdown matter? Probably the most important impact of it will be that when a deal is finally made the market will rally. In the interim we'll be driven crazy with the endless repetition and the sensationalistic reporting. Already there are claims that the shutdown is endangering the entire economy.

Even in the worst-case scenario predicted by Goldman of a one-week shutdown, the economic impact is expected to reduce growth just 0.3% in the third quarter. But what isn't noted is the likelihood that the Fed remains highly accommodative. With the Fed willing to keep rates low the market has seldom worried about slow growth, and in this case the impact is minimal. 

My plan is to not worry too much about the headlines and to stay focused on individual stocks. If the market is weak, it should be a good opportunity to inch into some positions which will benefit as the crisis (as it's called) is eventually solved. Right now it looks like plenty of folks are so anxious to take advantage of the weakness this event may create that they aren't even waiting for things to pull back.

My view is that the news is overblown and not all that important and we need not put that much weight on it. If anything it is a potential positive for traders who are seeking to take advantage of an inefficient and emotional market.

Columnist Conversations

I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
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