It's Not the Fed

 | Dec 11, 2013 | 4:34 PM EST
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The market's corrective action picked up steam to the downside today, but a lack of energy and interest rather than aggressive selling is the real problem. The limited momentum has taken a toll on the dip-buyers, who aren't feeling any rush to buy into this decline.

The media, of course, is trying to attribute the selling pressure to fears about tapering, but it looks like run-of-the-mill consolidation to me. We had a good run, even got a bit frothy, and now we are seeing profit-taking as things reset. That is exactly the pattern of action you'd expect to see when you had the sort of run we had in October and November. There is nothing unusual about a bout of selling.

A pullback here is what we need to set up a good year-end run. While the short-term action isn't very pleasant, it does increase the level of skepticism and brings many stocks back to good support levels. We all know how this market tends to reverse quickly and produce V-shaped turns just when it looks ready to fall apart.

The trick is to play defense and not impair capital while maintaining a positive view about the likelihood that the market will find support and ramp again to finish the year. There is certainly no guarantee, and we can't be overly anticipatory. But so far, the setup is developing as it should.

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

Dec. 11, 2013 | 2:09 AM EST

Moans and Groans Grow Louder

  • This is classic 'bad' market action.

The action the last few days has been slow and a little negative, but not entirely bad. Today, the action has shifted, eliciting plenty of moans, groans and complaints especially from those holding small-caps.

This is classic "bad" market action, which grinds down market players rather than scares them away. The selling is more a product of disgust with the action rather than panic. Of course, the tendency this year has been to reverse quickly once all the stops are triggered and the momentum players start to declare that the trend has shifted. In fact, if you bought the market each time Investor's Business Daily declared that we were "in correction," you probably have done pretty well.

Nonetheless, when we have this sort of price action, there's little choice but to honor stops and cut losses. Invariably, some stocks will reverse back up and you'll kick yourself for selling, but that is the price of discipline.

I see a number of stocks I'm interested in buying, but I don't see any reason to. This action could easily produce downside follow-through, especially with another weak finish. I'm still optimistic about positive seasonality and "holiday" trading, and today helps increase the chances it will occur.

Dec. 11, 2013 | 10:41 AM EST

A Good, Hard Shake

  • We need one for better action to conclude the year.

The budget deal in Congress looked like a good excuse to get this market running. While no one seems to think the deal solves any real problems, at least we will avoid the distraction of future political games.

But when the market didn't celebrate the brilliant work of our politicians, the sellers figured they had better lighten up just in case. There's broad selling and all major sectors are in the red.

I'm not unhappy, as we need this for better action to conclude the year. Negativity and pullbacks give us better trading opportunities. The alternative is that we chase stocks endlessly.

I cut some Twitter (TWTR) and Facebook (FB), which have had good runs into gap-up opens this morning, and I'm watching Himax (HIMX) for a possible breakout of a cup-and-handle pattern. You really have to be selective with new buying because of quick reversals in both directions.

I'm optimistic that the indices will make new highs into year's end after a good, hard shake. It looks like one is developing now.

Dec. 11, 2013 | 7:59 AM EST

You Don't Have to Justify this Love

  • And you don't have to like the market to buy it.

It has long been an axiom of mine that the little things are infinitely the most important.

--Sherlock Holmes, "A Case of Identity"

The indices have been flopping around like a fish out of water recently, but they are holding up well and refuse to crack. There has been some mixed action, but in the bigger scheme of things it has been nothing more than healthy consolidation after a big run.

One of things many market players have struggled with ever since the market bottomed in March 2009 is the feeling that another shoe is about to drop. We never had the standard retest of the lows that many technicians anticipated and many market players never really believed that the uptrend in the stock market was justified.

The thing that has probably held the market back more than anything is the feeling that the strength is caused by artificial means primarily quantitative easing. There simply hasn't been a correlation between the economy that most people live in and what is happening in the stock market. Virtually everyone you talk to still believes the economy stinks or isn't all that great, yet the stock market acts like we have one of the biggest booms ever. The feeling is that the stock market is not a realistic indicator of the real world and that is what holds people back as they look for the pullback that they believe is inevitable. There has always been the view that the stock market is manipulated, but the view has never been so broadly held as it is now.

Ironically this skepticism over whether the market strength is justified has created a massive wall-of-worry phenomenon. We keep running up not because of strong bullish conviction, but because of worry of being left out as we continue to climb, despite all the good reasons why we shouldn't.

It has been going on for nearly five years now and many of the bears have grown weary of fighting this seemingly irrational market. But you can sense that the feeling is still out there. The market rally was never really justified and it would be foolish to throw in the towel and embrace it now.

That is the dynamic that is in place as we wind up a year, which has produced some of the worst relative performance ever by hedge funds. The so-called smart money missed this move and now they have to try to maybe tack on a few points of performance as we wind up. Since we are in the seasonally strongest time of the year, that means we have little choice but to buy

I bring this up because it is a good time to remember how costly it has been to be distrustful of the market action. There certainly is good reason for it, but the anticipatory bears, who keep looking for the market to fall apart, have suffered tremendously. 

You don't have to like the market to buy it. You can hold your nose and find some decent stocks to buy, even if you think it's a joke that the indices have moved up the way they have. The economy may still be in very poor shape, but that hasn't mattered to the market for a long time.

The indices are doing exactly what they need to do to set up for a run to conclude the year. Don't let big-picture worries prevent you from profiting if technical conditions are right.

We have another very slow start setting up. Asia was red and Europe was green. A budge deal in Washington is grabbing the headlines, but isn't having much impact on the market.

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