A Positive Takeaway

 | Oct 08, 2013 | 4:18 PM EDT
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Though the DJIA was only down about 140 points, it was one of the worst days of the year for the high-momentum stocks that have been leading this market for so long. There were big losses across the board for the high-beta, big-cap names like Amazon (AMZN), Google (GOOG), LinkedIn (LNKD), Netflix (CMG), Facebook (FB) and others.

In addition, the small-caps that have enjoyed so much speculative interest lately saw bids dry up and disappear. There were pockets of carnage and the hits added up quickly if you were lugging much inventory.

As I've mentioned many times lately, the market has been holding up remarkably well despite all the negatives. A big reason has been hope that a political deal would be cut and we'd have a massive rally. Today, however, market players simply lost patience and once the momentum selling began it fed on itself, which is exactly what momentum tends to do.

The selling today is really more a product of protecting gains and maintaining discipline than it is a function of fear about a governmental deal. We all know the politicians will go down to the wire and there will be lots of posturing in the interim, but there isn't any reason to dump positions unless they start acting poorly. When things cracked today there really was no choice but to raise funds and keep accounts as close to highs as possible.

The good news is that this shakeup is going to create good opportunities. We need to make sure we are positioned to take advantage of them as they develop. Right now the potential for further downside looks high, so there is no rush to dive in and load up, but the potential for a deal is out there and we need to keep that in mind as things develop.

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

Oct. 08, 2013 | 12:39 PM EDT

Momentum Stocks Get Slammed

  • The herd is changing direction.

It is a momentum massacre today. The momentum stocks had been largely untouched by market weakness since the end of July, but they are being pounded today. There isn't any specific news to account for it, but when the herd changes direction, it can get very ugly very quickly. Momentum works in both directions, and once it reverses, many aggressive traders will sell first and ask questions later.

The Four Horsemen -- Facebook (FB), Tesla Motors (TSLA), Netflix (NFLX) and LinkedIn (LNKD) -- are all down substantially and showing no signs of support yet. LinkedIn, in particular, is suffering technical damage, but this selling is widespread, and many of the recent winners are breaking key levels.

I believe it is very likely that many of these stocks will bounce back sharply at the first hint of some sort of Washington deal, but the problem is that it may not happen until next week. That is a long time to wait, and I'm sure many of the sellers today are looking for the opportunity to buy back lower later in the week.

I'm suffering some hits, but for the most part my positions are small. I'm a potential buyer, but I'm going to wait and maybe do a little nibbling at the close. This is the worst action on my screens since June, and I'm going to give it time to play out.

Oct. 08, 2013 | 10:40 AM EDT

Choppy, Mixed Action

  • I'm sticking with stocks that are holding up.

There continues to be little worry or concern about the political drama in Washington but there is enough uncertainty to keep the action choppy and mixed. The indices are close to flat and breadth is running just slightly positive. The biggest negative is poor action in big-cap names like Amazon (AMZN), Google (GOOG), LinkedIn (LNKD), Chipotle (CMG) and Facebook (FB).

On the positive side, solar energy remains the leading momentum group. I've sold down most of my positions in the group but I would like to find remounts as they develop. There's action in 3D printing names such as ExOne (XONE), Protolabs (PRLB) and Stratasys (SSYS), and a fair amount of speculative action in junk China names like VisionChina (VISN) and CleanTech (CLNT), though it has narrowed a bit.

There is the potential for this market to fly on any progress in Washington, but trying to time when that will occur is the big problem. I'm trying to avoid the timing issue by sticking with stocks that are holding up. As I wrote yesterday, I'm much concerned about missing a relief rally than I am worried about a market meltdown. We will have warnings in the price action if things deteriorate, but the upside movement is likely to come very quickly and won't allow for easy entry.

This market is going to continue to chop around in the near-term but the potential for a major headline is out there and it is going to provide underlying support.

Oct. 08, 2013 | 7:45 AM EDT

No Panic Selling Just Yet

  • That's meant plenty of opportunity for dip-buyers.

At first sign of crisis, the ignorant don't panic because they don't know what's going on, and then later they panic precisely because they don't know what's going on. -- Jarod Kintz

The market remains in a holding pattern amid a lack of progress in the Washington political battle. Market players remain optimistic that a deal will be eventually struck, and that is keeping a bid under the market. But the longer the stalemate continues without any real movement, the more likely nervousness will build.

Some commentators, such as fellow Real Money contributor Doug Kass, see the largely complacent action as a negative. These folks claim it doesn't produce any sense of urgency among politicians -- that it convinces Washington the situation can't be that bad, since the market isn't too worried.

That may be the dynamic in play right now, especially as politicians seldom work out deals before they are forced to do so. This is probably why the market isn't particularly worried yet -- but that will change as time runs short against the Oct. 17 debt-ceiling deadline. We likely still have another week or so before the crisis will really start to create some fear.

On a technical level, the indices are weakening as the S&P 500 struggles to hold above the 50-day simple moving average and as the Dow trades far off recent highs. Still, we've seen relatively strong action in the Nasdaq and the small-cap indices. The Nasdaq, in large part due to strength in Apple (AAPL), is only a small percentage off recent highs.

Once again, the saving grace of this market of late has been that stock-picking is working. We saw poor breadth Monday, and many leading stocks pulled back, but there was still some good stock-picking and, in many cases, the selling was well-contained.

Even though the indices have been struggling, we have yet to see the sort of panic selling in which market players just want to escape and dump things wholesale. To the extent that this has occurred, it simply produced an opportunity for dip-buyers, who have been very quick to take advantage of any weakness.

There has been little talk about earnings season so far, but it's slated to kick off tonight with the irrelevant Alcoa (AA) report tonight. It will still be another week or so before the more important reports start to roll in, but hopefully this initial batch of numbers will nonetheless help to keep the focus on individual stocks, rather than on the tiresome political issues. The nice thing about earnings is that it always creates some new opportunities and leadership for traders.

The pain of this market has largely been contained because stocks have not acted in a correlated fashion. Again, it has been a good market for stock-pickers. But the longer this political battle draws out, the more difficult it will become to keep finding good action. Buyers don't want to give up, as they want to be positioned for the rally that ensues when a deal is made -- but they are going to become impatient if some signs of progress do not emerge soon.

Stay watchful and nimble, and don't panic. The market is still giving us opportunities, but it's likely to become more difficult before it gets easier.

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