Too Exhausted to Chase

 | Nov 12, 2013 | 7:30 AM EST  | Comments
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Stock quotes in this article:

IBB

,

tsla

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lnkd

There has been a lot of talk lately about bubbles and whether the market is currently in one. I addressed this last week, but I will do so again: A market doesn't have to be in a bubble in order for it to merely be a top -- or for it to undergo a correction.

In my view, far less discussed is what inning exactly the bulls believe we are in -- because we all know the statistics. A market that is up 20% year to date, come November, usually ends the year strongly. To me, it feels as if the market has had a great party these last several years, and those who are arriving now see an empty punch bowl and only crumbs from the chips. It doesn't mean the party is over. It just means there isn't as much to go around.

Last week's wild gyrations do not constitute the kind of action that happens early in an uptrend. Those moves are highly emotional, tending to come either at bottoms or at tops -- and I think we can all agree that the market is clearly not at a bottom.

What I see is that many of the momentum stocks, or high-beta stocks, have rolled over and stalled out for the most part. They are trying to regain their momentum, but it just isn't working. I have discussed biotech stocks several times of late, but let's look at them again.

The iShares Nasdaq Biotechnology Index (IBB) has not broken the uptrend line that starts early in the year, but it doesn't take a chart reader to see that this stock hasn't made any progress since August. So one of the hottest groups this year is no longer hot. The good news is that the fund hasn't made lower lows, and it hasn't broken the uptrend line. Still, you can see its upside action has been limited for more than three months.

Everyone finger-points at Tesla (TSLA) and its fall from grace, but what about LinkedIn (LNKD)? This stock has gone all the way back to its July and August levels. The problem with this stock is that it has broken its uptrend line. It has made a lower low.

What I see, therefore, is that many of the winners have faltered, and we don't have a long list of newcomers to take their place. Folks who are looking for giddy sentiment need to understand that we had giddiness already, two weeks ago, when the Investors Intelligence readings tagged 15% bears. Those levels likely won't be reached again, because for that we'd need all these momentum stocks to start surging now. How likely do you think that is? Heck, the banks -- which acted great on Friday -- couldn't even manage any follow-through Monday. Folks are just too tired to continue chasing.


 

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