Searching for Clarity

 | Nov 12, 2013 | 4:31 PM EST
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The major indices continue to churn and do little but they are still hanging near all-time highs, so it is tough to be too bearish about the technical pattern. On the other hand, the action in individual stocks has been choppy and sloppy. There is some good action but it is very inconsistent. Still, more than 200 stocks hit new highs, but the list of new lows grew to more than 80.

It is tough to have a strong view about market direction with such a mix of action. Yesterday felt quite good as I had a number of stocks working well, but today felt quite bad as many of the solar energy plays faded and the momentum players were scattered randomly.

The main feeling I get is that the bulls don't want to give up but they are not feeling as confident with the slowing momentum and lack of clear leadership. There are no flashing red warnings signs but lots of little issues are becoming tiresome.

I'd really like to provide clarity about this market but it really is messy and uneven. The best thing we can do is try to make progress with smaller trades while waiting for further developments.

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

Nov. 12, 2013 | 1:20 PM EST

Signs of a Turning Point

  • But nothing to confirm it yet.

The indices didn't do much yesterday, but underlying action in individual stocks was good. Today the indices continue to do little but this time the underlying action is poor. The pockets of momentum that we enjoyed Monday seem to have disappeared today. There is no sector leadership and small-caps are leading to the downside. The hottest momentum group lately, solar energy, is mostly red today.

For nearly two weeks we have had a low level of chaos and confusion. The indices do little or mislead us and individual stocks look poor one day and great the next. The conventional wisdom is that this sort of inconsistency and uncertainly is the mark of a turning point, but we haven't had anything to confirm that. But there is definitely a change in market character.

The most tempting thing to do is make a big picture bearish call and take a defensive stance. There's no shortage of negative arguments and it isn't unreasonable to say that we're due for a correction, but time and again that sort of macro market timing has proven to be a mistake.

The better approach is to let my individual stocks guide me. Sometimes the volatility will be misleading but, generally, if you set stops and dump shares when they are acting poorly, you will end up timing the market well.

I'm not seeing much action that I like now. A few things are holding up and there is no rush for the exits, but leading momentum names like Tesla (TSLA) and Facebook (FB) sure aren't acting like they did a month ago.

Nov. 12, 2013 | 10:52 AM EST

Confusing Action

Indices are technically healthy but individual stocks are volatile.

The action is choppy again today, but the bias is negative with breadth running about 2-to-3 negative. No sector really stands out. Solar energy is pulling back a bit but 3-D printing is still active. Organovo (ONVO), in particular, continues to do well.

Among big-cap momentum names, Google (GOOG) and Apple (AAPL) have had small bounces, which helps the Nasdaq, but Tesla (TSLA) and Amazon (AMZN) are rolling over. I'm not seeing a strong desire to chase, although Gogo (GOGO), Bitauto (BITA) and a few select names are still attracting interest.

I was caught with shares of Sarepta (SRPT), which is quite distracting. Typically, I dump a position like that immediately because dwelling on it can take up a tremendous amount of emotional energy. I find it better to take it off the screen and move on. Even if the sale isn't ideal, it is better to focus on making it up elsewhere.

I've been doing some partial sales of ONVO, BioTelemetry (BEAT), Gray Television (GTN), SunEdison (SUNE) and a few others. I find the market action confusing and I'm hesitant to chase the better-acting stocks now. Overall, the indices are still technically healthy but the action in individual stocks is increasingly volatile.

Nov. 12, 2013 | 8:24 AM EST

Stay Focused on Individual Stocks

  • Don't worry about market timing until the action shifts.

It's the little details that are vital. Little things make big things happen.

--John Wooden

For a couple of weeks, the market has had an unusual disconnect between the action in the indices and the action in individual stocks. For a while, individual stocks were collapsing under the surface while the indices were holding steady. Yesterday we saw the opposite, as many individual stocks performed well while the indices did very little.

Typically, these sorts of divergences are warning signs that the market is undergoing a change in character, but so far that hasn't proven to be the case. The indices continue to hover around all-time highs while active traders look for places to put money to work.

Yesterday's action provided another good example of how the surface is not reflective of the indices. Groups such as solar energy and 3-D printing acted like as though we are in a roaring bull market, but recent key leadership stocks, including Tesla (TSLA), LinkedIn (LNKD) and Facebook (FB), struggled and continued to trend down.

If you focus just on the indices, there is very little reason to be concerned about this market. While the pace of the advance has slowed so far this month, it looks like nothing more than some healthy consolidation. As I've often written, markets at their highs don't just suddenly fall apart and go straight down.

The action in individual stocks is much less clear than the indices. Many of the leading names and small-cap speculative plays already underwent a correction in the last few weeks, which the indices did not reflect. The indices barely budged as key momentum names, speculative China plays and a variety of other individual stocks experienced severe pressure. It was covered up by strength in big-caps such as Microsoft (MSFT) and some defensive names such as Clorox (CLX) and Procter & Gamble (PG) but there was definitely some corrective action in a large number of stocks.

The bullish spin is that the market had a correction, although not reflected in the indices, and now we are back on track and ready to continue the move higher. We have positive seasonality working for us and economic news has been on the positive side. Most importantly, the market doesn't seem to be quite as worried about the possibility that the Fed may taper its quantitative easing program.

In view of the good action in individual stocks yesterday, I find it difficult to be overly negative. Ultimately, all that matters is that we are holding stocks that are going up in price. That was certainly the case yesterday. I don't like that leadership is narrow and not very clear, but the momentum money is still hot and ready to chase -- and that makes for good trading.

We are seeing a little softness in the early going this morning due to weakness overseas and a stronger dollar, but traders are looking for action. I'm staying focused on individual stocks and am not going to worry about market timing until there is a shift in the action.

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