Why Worry About the Big Picture?

 | Oct 02, 2013 | 5:45 PM EDT
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The bears were hopeful that the market would see the error of its ways and react in the appropriate negative manner to the government shutdown disaster.   The market did open a bit weak after a negative session in Europe and breadth was poor with 2,200 gainers to 3,250 decliners, but if you were looking for some aggressive selling you'd have a hard time finding any.

What continues to be most impressive about this market is that so many individual stocks continue to act extremely well. In fact, things are going so well that the bears are grumbling that all the frothy action is a contrary indicator and we should expect the market to collapse at any time.

The market has simply not cared about the big-picture issues lately. Market players are busy making money by staying focused on individual stocks. Why should we worry about the government shutdown when there are 280 stocks hitting new highs?

Sooner or later we'll have a headline that will impact this market and we'll have some real selling, but it has been very costly to stand aside and wait for that to occur. Stocks continue to offer good trading opportunities on the long side, so the best thing you can do is trade them.  

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

Oct. 2, 2013 | 12:58 PM EDT

Market Once Again Proves Sellers Wrong

  • The dip-buyers are driving the market well off the early lows.

Once again, this market shows that it is a major mistake to sell into weakness. The dip-buyers did their thing again, and are driving the major indices well off the early lows. Breadth is still a bit weak, but the most notable aspect of market is seen in the pockets of momentum. Priceline (PCLN), Netflix (NFLX) , Apple (AAPL), Trulia (TRLA) and many others continue to attract interest from buyers who can't seem to get sufficient money to work.

Part of the reason the market is bouncing is that a meeting between President Obama and congressional leaders is scheduled for this afternoon. It is hard to imagine that it will result in a quick and easy solution, especially since the president has made it clear he has no intention of offering anything. In the words of Michael Corleone: "Senator? You can have my answer now if you like. My final offer is this: nothing."

I'm not expecting any resolution out of Washington soon, but it doesn't much matter. The theme all year has been to play catch-up with a market that never really makes entries very easy. After the debt-ceiling deal, the market went straight up for months to start the year, and many managers have never managed to catch up. For those folks, this has been one of the worst-ever years of underpeformance, and that is a big part of the reason the market has so much underlying support and is seeing so much aggressive dip-buying.

Once again, I regret some of my partial sales, but that is a discipline that has worked well for me over time. I'll be looking for some new buys into the close. This market just doesn't look like its ready to really roll, over regardless of what is going on in Washington.

Oct. 02, 2013 | 10:20 AM EDT

No Sign of Panic

  • This market has a buying appetite and little worry.

We have a soft open and breadth is running quite poor with just 1,300 advancers to 3,600 decliners, but there doesn't appear to be any panic and there are signs of dip-buyers under the surface. There continues to be strong speculative interest in China-related names like BitAuto (BITA), my stock of the week, and a number of others like Qihoo 360 (QIHU), YY (YY), E-House China (EJ), Dangdang (DANG) and Renren (RENN).

Another group that is staying active is small biotechs such as Immunomedics (IMMU) and Gentium SpA (GENT) following through after big gains. The big-cap momentum favorites are holding up well with Netflix (NFLX), Baidu (BIDU) and Facebook (FB) all solidly green.

The pattern lately is for the indices to understate the strength in individual stocks and that is exactly what is going on again.

So far, I've done a little flipping and haven't made any new buys but the way this market is acting I see no reason to be negative. I'll keep stops on my stocks and if the indices make new intraday lows as the day continues I may tighten up, but this market has a buying appetite and there isn't much worry.

Oct. 02, 2013 | 7:50 AM EDT

Is the Party Over?

  • It ain't over till the dip-buyers lose their zeal.

I never met anyone who gets up out of their bed after a night on the town and says, 'Oh I wish I'd had another drink last night. That would have been a great idea.'

-- Arthur Mathews

The market not only didn't react to the government shutdown yesterday but it actually had a pretty good party. Momentum names and small-caps ran up like they didn't have a worry in the world. The indices were green, but they greatly understated the strength of action in many individual stocks. Breadth was more than 2 to 1 positive, and over 400 stocks made new 12-month highs.

It was quite a party, but it is producing a hangover this morning, as market players scratch their heads and wonder what the heck they were celebrating.

Much of the move yesterday was a function of bears who were overly anticipatory and were caught leaning on the market a bit too hard. Buyers have been consistently rewarded for jumping in very quickly when there is a negative, and with bears hoping that the market would panic a bit, the conditions were ripe for another squeeze of the bears and more chasing by underinvested bulls. Nothing has driven more upside in this market than underinvested and underperforming bulls trying to add long exposure when the market refuses to roll over.

This morning the reality of the shutdown is having more impact. The major concern is how this can play out, especially since we have the debt ceiling battle coming up in just two weeks. Do we resolve one issue and then have the same battle again in just a few days? There doesn't seem to be any real clarity about how this will play out, and as we all know, the market hates uncertainty.

Part of the strength yesterday was likely due to the fact that it was the first day of a new quarter and there were automatic inflows into retirement plans and mutual funds. The market has had a tendency toward strength on the first day of a new month, and it was probably accentuated yesterday because there finally are some inflows into equity funds.

So is the party over now? Is the market going to forget all that good action and wallow in the misery of politics and a poor economy? If you want an excuse to sell positions, it is there, but what we need to keep in mind is how well select individual stocks have been acting. Even during August, when the indices had a fairly sharp correction, many stocks were unaffected, and the level of speculative interest remained quite high.

What has been the key to market lately is that the action in stocks has been uncorrelated to the major indices. If you have been picking stocks with good charts and have managed the trades closely, it is likely you would have been unaffected by the big-picture issues out there that push around the indices.

It certainly is possible that the character of the market is now going to shift as big-picture issues become more intense, but I want to see some proof of that before I let go of stocks that are acting well. This market has had more lives than a dozen cats, and it has paid to not be overly negative too quickly.

It looks bleak out there this morning, and that is going to scare some folks out on this open. The real problems won't emerge until the dip-buyers lose their zeal, however, and we have seen no indication of that at this time.

Buckle up your trading helmet. It is looking rough out there.

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