A Reasonable Complaint

 | Nov 21, 2013 | 4:35 PM EST
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After selling off on the FOMC minutes Thursday, the market trended upward all day today without a worry in the world. Breadth was very strong with banks attracting interest in particular. But for such a strong day, the action was dull.

Leadership is now in financials and defensive names. You'd be hard-pressed to find a group of momentum names now; we have no Four Horsemen driving the market like we did a month ago. A few strong names are showing up, like Fonar (FONR), Gogo (GOGO) and Bitauto (BITA), but there are no dominant themes or leadership.

One reason I'm complaining is because I've been having a hard time finding good setups. I have made some good trades but it has been like pulling teeth trying to find good entries, especially in liquid names. Today was no different, even though the action in the indices was much better.

Remember, just because you find it hard to embrace the strength, it doesn't mean that you should do the opposite and fight it. Even though finding new buys is difficult, I'm not interested in shorting this market. The bulls are providing excellent underlying support and there is no reason to believe they won't keep pushing.

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

Nov. 21, 2013 | 1:42 PM EST

The Market Has a Short Memory

  • Wednesday's slide has been completely forgotten.

We have "no memory" action today. The selling squall on the Fed minutes Wednesday has been completely forgotten and market players are busy looking for ways to put cash to work. Breadth is approaching 3:1 positive, but buying is sedate without any wild momentum or strong themes.

While the action is perky, I'm still struggling to put cash to work. The main problem is that I don't have a high level of confidence that we'll see sustained momentum given the lack of energy. The big chases that worked well for much of the year are now problematic. They're still out there but the success rate has declined.

What I find most interesting about the action today is how complacent it feels again. We had three days of poor action under the surface and a quick reversal yesterday that took down quite a few high-flying stocks. Today, that action seems to have been totally forgotten as optimism about a year-end rally builds.

I have a couple of things on watch but I need to get to work and find more ideas. The overall market action is fine but the challenge is finding a good way to participate.

Nov. 21, 2013 | 10:40 AM EST

Buying to the BEAT

  • I've added Biotelemetry to Best Ideas.

We have a "Fed minutes are old news" rally to start the day as the tapering talk is quickly forgotten and market players try to put money to work. The Philly Fed report came in soft, but that only seems to reinforce the thinking that tapering isn't going to happen soon.

Breadth is better than 2:1 positive. Biotechnology and solar sectors are leading, which tells us that the momentum money is trying to get things going again. Gold and silver continue to break down and action in the high-momentum names is generally positive.

I'm having a very hard time putting money to work and I'm worried about forcing things. I don't like a lot of setups and I'm not seeing much follow-through in the movers.

I am adding a new name to the Best Ideas list this morning: Biotelemetry (BEAT), which specializes in equipment used for remote cardiac monitoring. It recently announced deals with Kaiser Permanente and UnitedHealth (UNH) and it is starting to see improved margins. The company is working to diversify into other remote-monitoring markets as well. The stock spiked following its third-quarter report but has since pulled back toward support. This is a good time to take an initial position and track BEAT for further entries, especially since the medical-device sector is one of the better groups right now.

Nov. 21, 2013 | 7:50 AM EST

Flexibility Is Called For

  • There is no reason to be dogmatically bullish or bearish.

The measure of intelligence is the ability to change.

--Albert Einstein

Despite the general belief that minutes from the last Fed meeting were old news, their release still served as a selling catalyst Wednesday afternoon. Many of the bulls seemed surprised by the behavior, but the market has been showing underlying weakness for days, and the reaction merely confirmed what the technicals had been indicating.

The issue now is whether the market shrugs off this worry, as it has done many times before, or if it triggers greater selling pressure as market players move to protect recent gains.

Overall the indices still look quite healthy on the surface but, as I've been discussing for the last few days, underlying action has been problematic. We have seen major weakness in the leading momentum names, and it is tough to find the sort of leadership you would expect in a market that is blasting to new highs.

The bulls seem quite confident that this action is just a temporary blip before the indices find support and then embark on a glorious end-of-the-year rally. However, it is tough to not be at least a little cautious, given the action in many individual stocks. For example, the hottest stocks in the market last week were 3D printers such as 3D Systems (DDD), Voxeljet (VJET), Stratasys (SSYS) and Organovo (ONVO). When they turned down this week, the momentum money fled and they were all destroyed.

The 3D-printing space isn't big, but it does illustrates a rolling correction in some of the key momentum groups. Biotechnology, social media and China names have all cooled off in the last month or so, and nothing has really developed to take their place.

The dilemma is that, so often, this sort of troubling action hasn't led to further pressure. We'll suddenly see a reversal, and pundits will start using the phrase "no memory" to indicate how the character of the market has shifted so suddenly.

As a reactive trader, I don't try to guess if this is going to happen again. I prepare myself mentally for such an event, but I want to see an actual shift in price action before I'll embrace the market once again.

Although the action has been quite poor the last three days, it has made me feel more optimistic about our trading opportunities. Last week, when the market made new all-time highs, so many stocks were elevated on thin volume with little support that it was nearly impossible to find good entry points. That attitude actually turned out to be a good thing, as many of those stocks have corrected gingerly this week.

I'm currently positioned with quite a bit of a cash and an open mind. I'm not convinced that the current pullback has played out, but I suspect the bulls are going to try a "the Fed minutes are old news" rally. Even if they do, there are still few good technical setups, so it will be a market for quick flips rather than the building of position trades.

My game plan is to just keep on digging for the right setups. For example, the little Zhone Technologies (ZHNE) trade I mentioned Wednesday morning has worked well -- but it is very tough to find many like this.

Stay flexible and be open to any possibilities, and we'll see what develops. There is no reason to be dogmatically bullish or bearish.

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