Can't Trust the Indices

 | Nov 11, 2013 | 4:20 PM EST  | Comments
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Stock quotes in this article:

gtn

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tsl

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spwr

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jaso

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jks

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gogo

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onvo

For nearly two weeks I've been writing about how the indices fail to reflect the underlying action. Today was another example. The indices were absolutely dead. They not only closed flat but there was hardly any intraday volatility and even breadth was almost exactly even.

Despite the comatose indices, though, I had an unusually high number of strong stocks on my screens. The hot money was chasing quite a few small-caps today, and groups like 3-D printing and solar energy were very strong. My stock of the week, Gray Television (GTN), traded nearly straight up all day and many "junk" small-caps like Recon Technology (RCON) and Digirad (DRAD) were quite frisky.

This sort of speculative action had dried up the last couple of weeks, so it is peculiar to see it so strong, especially when the indices are doing so little.

Is this a sign that buying interest is picking up and that the indices are going to keep on running? Maybe, but the indices have been useless as indicators of anything. The way to make money is to stay focused on stocks and not the indices.

It may have been an odd day, but it was good if you were trading the right stocks.

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


Nov. 11, 2013 | 2:08 PM EST

A Stock-Pickers' Market

  • Don't let the big picture keep you from good market action.

The indices have barely budged in the last few hours and breadth remains close to even, but traders are happy. The action under the surface has improved nicely and that is not fully reflected in the indices.

There aren't as many strong leadership names as a month ago when Facebook (FB), Tesla (TSLA), Netflix (NFLX) and LinkedIn (LNKD) were riding the momentum train, but we there is aggressive action in 3-D printing and solar energy.

It sounds trite but it is a stock-pickers' market with very good movement in names like Organovo (ONVO), Gray Television (GTN), Gogo (GOGO) and Zeltiq Aesthetics (ZLTQ). It shows clearly that there still is a strong appetite for buys and that market players are still trying to put capital to work.

The indices have been a major detriment to market players lately because they simply don't reflect what is really going on. They misstated the correction that occurred over the last 10 days or so and now they are missing the fact that many stocks have found support and are regaining momentum.

Don't let the big picture keep you from appreciating good market action.


Nov. 11, 2013 | 10:34 AM EST

Individual Stocks Holding Up

  • Buyers have inched in and decent trading is developing.

The week kicked off with slightly negative action but the buyers have been slowly inching in and decent trading is developing. The dip-buyers are a bit more aggressive and even though breadth is running a little negative, the action is decent.

As I discussed in my opening post, the indices have been a bit murky due mainly to poor action under the surface. But many individual stocks have been correcting long enough to find support and to attract buyers who prefer to buy weakness and dips.

My stock of the week, Gray Television (GTN), is off to a nice start. It has a picture-perfect chart and is in a good sector. Solar energy stocks are perking up and I've been trading names like Trina Solar (TSL), SunPower (SPWR), JA Solar (JASO) and JinkoSolar (JKS).

Organovo (ONVO), which is on the Best Ideas list, continues to find momentum. This stock is in the very hot 3-D printing sector, which was panned by Barron's this weekend and that seems to be causing a short squeeze.

Gogo (GOGO), which I mentioned recently, had a great earnings report and it's going to be a go-to momentum name. It has a very interesting niche supplying high-speed Internet access for aircraft.

I've done a few partial sells this morning but, overall, it is looking like a good trading environment if you are fast and manage positions closely.


Nov. 11, 2013 | 8:13 AM EST

Muddled and Conflicting Action

  • Being flexible is the best approach.

Errors, like straws, upon the surface flow;

He who would search for pearls must dive below.

--John Dryden

The market has undergone very unusual action recently, which makes for a high level of uncertainty ahead. Most remarkable is the great number of stocks undergoing corrections in the past week to 10 days. Many of the leading momentum stocks and speculative small-caps have been struggling but it has not been reflected in the indices.

On Thursday, it looked like the indices were finally going to catch up with the poor action in individual stocks but it turned out to be just a one-day event as the indices rebounded sharply Friday and recaptured most of the prior day's losses. Many of the leadership stocks bounced back as well and actually outperformed the indices for a while, but most remain under severe technical pressure.

What added to the confusion Friday was that the market's positive reaction to good employment news. The conventional wisdom recently has been that good news is bad news because it increases the chances the Fed will taper off bond-buying at an earlier date. The market has been very skittish over the tapering issue but it seems to be slowly pricing it in and even embracing the idea that the Fed is going to move slowly to the sidelines.

That reaction to the economic news Friday and positive seasonality into the end of the year favors the bulls, but the challenge of this market is the action in individual stocks. Most of the leaders have been badly hurt in recent weeks. Biotechnology and stocks like Facebook (FB), Tesla (TSLA) and LinkedIn (LNKD) have all been struggling. While the Twitter (TWTR) IPO was a success, subsequent trading has not been so hot and isn't stirring up interest among momentum traders.

Banks and defensive stocks have shown relative strength but these groups don't normally lead the market higher. The one momentum group that remains in good shape is solar energy, but entries are challenging as many names are extended.

The dilemma is that if you just look at a chart of the major indices things look quite good, but individual stocks have been a mess. The good news may be that many stocks have already undergone a severe correction and the major indices may not need to catch up. That is the big issue now: Will individual stocks regain their footing and catch up with the indices, or will the indices struggle and more clearly reflect the underlying action in key stocks?

Ultimately, I always let individual stocks be my guide and, at the moment, they still need work. Many may be washed out and finding support, so I have little interest in trying to find shorts, but we don't have healthy leadership or momentum now.

We have a mixed start to the action this morning and not much news. I'm going to keep my market bias to a minimum and stay opportunistic as I look for good action in individual stocks. Flexibility is usually the best approach when there is muddled and conflicting action.

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