Shark Bites: Heck, Why Not Buy This Market?

 | Jan 24, 2017 | 1:56 PM EST
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We are seeing some "if they can't take this market down, then we might as well buy it" action. After shuffling around and doing little to start the day, the buying picked up and has been steady all day. Although many market players have been anticipating a market breakdown, this perky action today is causing some anxiety among underinvested bulls who fear they will be left behind.

By any measure, the long base in the S&P 500 is supportive of a big move if the market can generate some momentum. Quite a few folks are leaning toward the downside as they are still looking for a "sell the news" reaction to Donald Trump, but a break to the upside has potential to move quickly, especially if the market closes strong today.

It hasn't started yet, but you can be sure the news media are going to start talk about the 20,000 level of the DJIA again. It is still an extremely important psychological level and will likely trigger some algorithmic trading when it is breached.

Breadth is stellar with about 4,700 gainers to 1,900 decliners. New 12-month highs have ramped to around 450 issues. Other than biotechnology, most sectors are doing well. The miners I mentioned in my early post such as Teck Resources (TECK) and Hudbay Minerals (HBM) are still ramping up.

I mentioned that I've been averaging into Alibaba (BABA) today. This is a good example of how to approach a momentum play. At first glance, the reaction is that it has already made a big move and it is too extended to chase. Strong stocks look like that quite often, and when we are trained to "buy low and sell high," it is easy to forgo a chart that looks like this.

What you need to keep in mind is that stocks making big moves will trade at their highs and look extended quite often. Apple (AAPL) didn't go up 100-fold by trading in a range. If you bought low and sold high, you wouldn't own it for very long. (Apple is part of TheStreet's Action Alerts PLUS portfolio.) 

The key to averaging in to a stock like BABA is to do it slowly and small. You have to have a high tolerance for volatility and that is difficult if your position is too big. What kills more traders than anything is building outsized positions in a downtrend and not having any risk control.

I've average into BABA at a bit over $101 so far and will likely add more as the day progresses. If this market continues to trend higher, BABA is likely to be viewed as a good candidate for idle cash of bigger funds.

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