Slow Action, but Not Negative

 | Dec 10, 2013 | 4:28 PM EST
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The market continues to grind away in a very tight trading range. After two days of small gains, it was the bears' turn to have the edge, but the movement lately has been so slight that it is meaningless. Breadth was weak again as small-caps did poorly, but big caps like Twitter (TWTR), Facebook (FB) and Baidu (BIDU) made up for it. Biotech and energy were the laggards while precious metals finally had a good day.

It is tough navigating because it is such slow action -- but that doesn't mean it is negative. In fact, it is probably positive as we could use consolidation and less frothiness. The one thing is clear: There is underlying support. Buyers may not be very aggressive, but they aren't giving up either.

Most often, the best course of action is to keep plugging away, and that's what I'm planning to do. FB, which I discussed in my opening post, acted well and if we can find one or two like that each day, we'll be in good shape.

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

Dec. 10, 2013 | 2:05 PM EST

Don't Force It

  • Positive seasonality is still setting itself up.

I'd like to offer new insights, but the pattern of extremely slow action with limited pockets of momentum continues. It isn't bad action, and may actually be positive in the long run, but it is very mixed and random.

The highlight of the day continues to be Twitter (TWTR) and Facebook (FB), which seem to be the default momentum leaders. Google (GOOG) is still doing well and LinkedIn (LNKD) and Amazon (AMZN) are perky, but small-caps are working well and it's easy to get caught in weak names.

Keep in mind that December's positive seasonality doesn't really kick in until the last couple weeks of the month. This softness now is actually a better setup for a late run than if it kept running without a rest.

I'd like to put more money to work but there aren't many options. It's better to be selective than to force things.

Dec. 10, 2013 | 10:29 AM EST

Playing Tight

  • Highly selective trading continues to work well.

The indices continue to do very little today but the bias is a little more negative. Breadth is running 2,250 gainers to 2,700 losers. Precious metals are leading and biotechnology is lagging, which isn't a good combination for the bulls.

Despite the mixed action, there are pockets of momentum, most notably Twitter (TWTR), which is now the king of momentum. It just goes to show how all those valuation arguments become irrelevant once momentum kicks in. I'm sure the bears will tell us how ridiculous it is that the stock is up so much, but fighting this sort of strength has cost the bears all year.

Facebook (FB) is finally showing a little life and there's continuation in Baidu (BIDU) and Google (GOOG). The 3-D printer sector is lively but finding good themes or leadership is a challenge.

I took a position in housing play E-House China Holdings (EJ) this morning and will look to add more. Apple (AAPL) is reversing along with other pockets of weakness, so I'm playing things tightly. But highly selective trading continues to work well.

Dec. 10, 2013 | 8:00 AM EST

Just Hang Back and Observe

  • In a slow environment like this, that is the best course of action.

'Slow' works in an altogether different principle, on the deceptive impression that there's plenty of time to prepare, which conceals the central fact, that no matter how slow things go, you'll always be slower.

--Richard Russo, Empire Falls

Early indications say the indices will open up a few pennies, but it remains extremely slow out there. While the market is holding up quite well, we aren't see much momentum. Overall the action is perfectly healthy -- but it isn't very interesting.

Traders are latching on to a few movers like Twitter (TWTR), Wynn Resorts (WYNN), and Baidu (BIDU). However, the action has been quite narrow, and there have been a fair number of landmines if you haven't been careful. Quite often, in flat markets the best movers stand out and attract further interest from traders looking for action. We are seeing some of that, but the pockets of momentum are pretty small.

The big temptation in markets like these is to assume that the stalling is a signal that a top is forming. While that is possible, this looks like quite healthy consolidation after a good run. Market players are obviously providing support, as they anticipate a strong finish to a good year. While some distribution is taking place, and while we're seeing some selloffs in momentum names, the market just isn't crumbling in the fashion you'd expect if a top were forming.

Ideally a pullback and a higher level of negativity would probably be better than this flat action, but one of the easiest mistakes to make is to think that the market is going to do what we want it to do. We have to trade what we are given, and when it is challenge we need to step up rather than come up with theories as to why it may shift.

So the best thing you can do in an environment like this is watch to see where the action is. Traders don't care about the big picture when they spot a mover like Twitter. If you can find names like that at a fairly early point, you can grab a ride. The key is that you treat it as a trade, and not as an investment.

One stock I will be watching today is Facebook (FB). The stock is trying to move back up above key resistance at just under $49, which is its 50-day simple moving average. It has a better valuation than Twitter does, and it may see some sympathy buying from those who don't like to chase big moves. In addition, I believe there may be some speculation again about Facebook being added to the S&P 500 when the index rebalances.

If we can pick off a few trades like that, then the dull action in the indices won't matter much. In the "old" days I used to find some of the best trading when the indices did little. It no longer seems to work in the same way, but if you stay selective and focus on individual stocks, you can do well.

We shall see what develops. There is no big economic or earnings news on tap, and there isn't much on the wires either.

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