The Big Picture Is Murky

 | Nov 01, 2013 | 4:29 PM EDT
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What's most notable about this market has been how the major indices are hiding very weak action. Breadth was poor again today with 2,370 gainers to 3,150 decliners, yet the Dow industrials finished with a gain of 0.45%.

The iShares Russell 2000 (IWM) has been reflecting some of the weaker action with a loss of 2.4% over the last three days, but it isn't just small-caps that are struggling. Most of the momentum favorites are well off their highs and aren't attracting the buying zeal of a few weeks ago. Facebook (FB), for example, had an upgrade and positive comments, but it finished weak and in the red. Google (GOOG), Amazon (AMZN) and Apple (AAPL) also told a different story than the indices.

I'm hopeful that this is just healthy consolidation before regrouping for a run into the end of the year, but if you haven't managed positions tightly, it has been very easy to suffer hits. In this environment, the little pullbacks can add up very fast.

With earnings season winding down there is going to be more impact from macro concerns. The biggest danger is any talk about bond tapering by the Fed. In fact, good economic news may end up being a negative because it will help create the impression that the Fed will tighten sooner rather than later.

The big picture looks murky. We could easily regain our footing and get back on track, but the poor action under the surface demands defense.

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

Nov. 01, 2013 | 10:42 AM EDT

Solar Sector Lights Up

  • I'm looking for entries in the group.

Buyers started the day inching back into momentum favorites like Tesla (TSLA), Facebook (FB), Netflix (NFLX) and SolarCity (SCTY). First Solar (FSLR) has ignited the solar sector and biotechnology is seeing some bids, which is making the market action feel like it did a couple of weeks ago.

The ISM manufacturing report was stronger than expected, which made the market nervous momentarily as some Fed members seem to be hinting that tapering may not be delayed for as long as many folks would like. The machines seem to be jerking the action around, but I'm concerned that tapering fears may be an excuse for more selling.

I'm looking for entries in the solar group and I have positions in SunPower (CSUN), JinkoSolar (JKS), SCTY and FSLR. Most of those charts were messed up during the recent pullback and still need work, but there is obvious support and good news flow.

Another stock on my radar this morning is Gogo (GOGO), which provides in-flight Internet. The FAA easing some device rules may benefit this name.

My trust in this market remains low, but I'm trying to put money to work and knock out trades. I don't think the market is done correcting, but it isn't going to do so in a straight line.

Nov. 01, 2013 | 8:25 AM EDT

The Market Beast

  • It's going to get you if you're not careful.

One thorn of experience is worth a whole wilderness of warning. --James Russell Lowell

The market has been showing signs of stress for about a week. It started with pressure on high-momentum names and speculative China issues and now we're seeing weaker breadth and downticks in the indices.

This trend hasn't gained much momentum yet, but the big question is whether this is just a healthy rest before an end-of -year rally or the start of a topping process that will finally trap the perma-bulls who have done so well by ignoring all negatives.

The bearish arguments are easy to make, much as they were since the first trading day of 2013. The economic recovery remains moribund, endless quantitative easing is going to end eventually, the political battles in Washington will stress the market as the next deadline approaches, and complacent or overconfident market players are sure to be taught a lesson by the market beast sooner or later.

The bulls' response is to shrug. They have heard it all before and it has been irrelevant. Pundits who keep telling us about the dire fundamentals and the ugly macroeconomic picture have been wrong. These experts are confident that they are just early and that disaster lies ahead, but caution of that sort has been costly.

The proper way to approach this market has been to stay intently focused on the price action. The big-picture arguments have been useless as a way of approaching the market. Everything you need to know to make money has been in the price action.

It is easy to maintain that cavalier attitude because the market has pretty much trended straight up all year. There has been no need to worry about the things that the pundits keep telling us are of real concern. In fact, it has been such a lopsided market that even when the price action does show signs of stress, it has been a mistake to be too cautious, too quickly. If you have been disciplined and taken defensive steps at the early signs of weakness, it has probably cost you as the market righted itself and kept running.

We are faced with that dilemma again. There are signs of weakness in the price action, but it has been a mistake to be bearish too quickly, even when there are cracks in the action.

Do we abandon our discipline because it has not paid off this year? The reason it is called discipline is because it isn't always easy and usually comes with a price, but overall, it keeps us in the game and helps protect our capital, so we must embrace it.

The price action in key stocks has been weak enough in the past week to make my discipline kick in and force me to be more cautious. It may turn out to be another false alarm, but avoiding capital losses is far more important than pushing for further gains.

It is the first day of a new month and that generally means new capital inflows will hold us up, but this market has issues lately and this is good time to be more careful than usual.

We have a slightly positive open on the way with strength in solar energy and lots of Fed talk on the agenda.

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