Buyers Want to Buy

 | Oct 07, 2013 | 4:14 PM EDT
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Following the gap-down open, the dip-buyers did their thing again. But they didn't stick around for long and the market closed poorly. There isn't much motivation to hold on as it looks like the deadlock in Washington is going to drag out for a while longer.

There is enough optimism about a deal to give the market underlying support, but the longer things drag out, the more nervousness there is of a real market panic. Many market players don't think there is any chance of a debt default, but if there isn't some movement to negotiate, it is going to be tough for the market to hold up.

While it was a poor day with poor breadth, I still lean bullish. My feeling is that there is a general inclination to buy, and the bulls just need an excuse. Any rumor of a possible deal is going to move the indices up quickly. Volatility is picking up and there is plenty of nervousness, but that may actually benefit the bulls whenever the politicians make progress.

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

Oct. 07, 2013 | 1:23 PM EDT

An Odd Trading Environment

  • Watch out for a relief rally.

Usually when we have a political battle we hear rumors of a potential deal. We are hearing almost nothing in that regard, which indicates a hard line on both sides.

Despite the lack of progress, the market isn't acting that poorly. We saw another big bounce, but it's losing steam again as the short-termers flip for gains and wait to buy the next dip. Buying weakness keeps working and that is giving us decent support.

What is most interesting about the market is that the shorts seem more nervous than the longs. The bears are having a little success today and the longer this shutdown drags out the more likely we'll see pressure, but the bulls are counting on a deal eventually. There is little doubt that if a resolution is hammered out and the uncertainty lifts, the market is going to fly.

I'm more concerned about missing a relief rally when a deal is made than about the short-term weakness. That doesn't mean I'm not maintaining my discipline, but I'm not rushing to sell if a stock is acting OK.

It is an odd trading environment with obvious negatives in the short term that will likely produce something positive down the road. If you are too short term and go to all cash, you have the potential of missing out. But if you aren't careful, this downside action can take a toll.

Stay disciplined and manage positions carefully, but don't be so negative that you discard positions that are acting well.

Oct. 07, 2013 | 10:28 AM EDT

Don't Sell Too Soon

  • There's more interest in adding longs than protecting gains.

Once again, it's a mistake to sell into the weak open. The indices are still solid red and breadth is poor at about 4:1 negative, but many stocks are well off their early lows and you can see signs of dip-buying.

All last week my biggest mistake was premature selling. The stocks that bounced just kept running and there was more interest in adding long exposure than trying to protect gains. The buyers are not going away despite the very negative big-picture arguments.

The bears have extremely good arguments but the big danger is that some sort of resolution in Washington could come at any time and when it does, this market is going to explode higher. I'm more concerned about being caught leaning negative than leaning long. At least if I'm long, I'm not likely to be surprised as much because the risk is obvious. If you are short, the risk is much more dangerous because it is going to be explosive when a deal is finally made.

My Stock of the Week, BioTelemetry (BEAT), is off to a good start and Shark Technical Buy, Galectin Therapeutics (GALT), is performing well. BitAuto (BITA), which was my Stock of the Week last week, continues to hold up well. Idera Pharmaceuticals (IDRA), Century Casinos (CNTY), NQ Mobile (NQ), Revolution Lighting Technologies (RVLT), Pacific Biosciences of California (PACB) and Potash (POT) are a few others on my watch list this morning.

Oct. 07, 2013 | 8:08 AM EDT

Good Trades Are Working

  • Remain focused and don't worry too much about the macro events.

We're not going to pass a clean debt limit increase. --Speaker of the House John Boehner

This morning, market players are regretting their optimism on Friday as the Washington politicians have dug in and made absolutely no progress at all in resolving the government shutdown. Both sides continue to reiterate their positions and neither seems willing to move.

This isn't all that surprising since most political deals are not cut until the very last minute. Market players were unrealistically hopeful on Friday, but that was partially due to price momentum rather than anything fundamental. Stocks have been performing very well despite the dysfunction in Washington and that attracts buying simply because market players don't like to sit on the sidelines and be left out.

Every time we have seen weakness recently, the market has come back quite quickly as players anticipate a big upward spike as soon as some deal is made. The market simply does not believe that the U.S. is going to go over debt ceiling cliff. While the politicians don't seem to have any chance of making a deal right now, we know this market is going to fly on any sort of meeting or headline that indicates any progress in negotiations at all.

My main theme recently has been the strong action in individual stocks despite the very messy macro situation. It has been quite refreshing to see good stock picking rewarded, even though the big picture has been extremely uncertain and quite choppy. If you have stuck with the stocks that have had good technical action, then you have done well -- even though the commentary out there makes it sound like we are heading for a major crisis.

The big question is whether the macro issues are going to kill the good trading and stock picking. We'll have some indication about this after the open this morning. The dip-buyers generally would not hesitate to take advantage of weakness such as we are seeing in the early going today. If they don't start to pick at some things and provide support after a sizable gap down, then it is going to be a difficult session for the bulls.

The biggest positive the bulls have is that if there is a political resolution, this market is going to have a huge celebration. No one wants to be caught leaning against that which makes it tough to maintain a bearish posture for long. This political debate is not much different than others and the likelihood is that there will be some movement the closer we move to the deadline.

Once again, I'm going to remain focused on individual stocks and not worry too much about the macro events. Trying to trade this market based on the headlines has been nearly impossible lately -- and it isn't even necessary when some good trades are working.

We'll see what the dip buyers do with a Monday morning gap down. I'll be looking for them to show up sooner or later even though the news flow does sound quite bleak this morning. 

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