There were a few minor negatives today, but overall the pattern that's been in place for over two weeks occurred once again. We started slow, had some dip-buying and then closed with a strong run. Breadth was positive, with the Nasdaq and small-caps leading.
It was bit choppier intraday and the S&P 500 took out its intraday lows late in the day. Still, the strength in the Nasdaq offset any worries that were created. At this point, market players are very unlikely to back off until they push the Nasdaq through the 5,000 level, which is the major focus of the business media.
There continues to be a great temptation to try to guess when this streak will end. However, the key to trading momentum is to remember that it always lasts longer than seems reasonable. It's extremely easy to apply our subjective beliefs as to appropriate behavior to the market beast that has a mind of its own.
The easy thing to do here is to give warnings that things are going to change. The hard thing to do is to stay with the action as long as possible. Being anticipatory has carried a heavy price. At some point we'll get a reversal that will sting the bulls but we'll worry about it when it starts to happen.
Have a good evening. I'll see you tomorrow.
Feb. 26, 2015 | 1:33 PM EST
A Slow Walk Up
- I wouldn't mind some downside to spice things up.
There is nothing new about the market today. It continues to do exactly what it has done for the past 11 days. A little weakness early in the day attracted dip buyers and slowly trended upward on mediocre volume. There are pockets of momentum in Avago (AVGO), Super Micro Computer (SMCI) and LinkedIn (LNKD), and speculative interest in low-priced biotech stocks Ariad Pharmaceuticals (ARIA), Idera Pharmaceuticals (IDRA) and Advaxis (ADXS), but it is a bit slower than usual.
The bears continue their futile attempt to time a top, but plenty of bulls also wouldn't mind some downside to set up more trades. Despite what some folks may be wishing and hoping for, this market keeps slowly walking up and there is little choice but to stay with buys as long as possible.
I'm dinking around with a few odds and ends again -- Capnia (CAPN) and Cross Country Healthcare (CCRN) -- but I wouldn't mind some variety to spice things up.
Feb. 26, 2015 | 10:38 AM EST
Shake It Up
- One-sided action isn't healthy. We need to build up a little worry.
The atmosphere was almost frothy this morning as the bulls celebrated this persistent upward trek and analysts rolled out a number of upgrades and target increases. Morgan Stanley, for example, initiated coverage on names including Yelp (YELP), Priceline (PCLN), LinkedIn (LNKD) and GrubHub (GRUB). We also have some interest in Facebook (FB) and big movers like Avago (AVGO).
Despite the upbeat mood, the market is showing signs of rolling over. There was a very brief bounce off the open but now breadth is slipping. Precious metals are leading while biotechnology and oil are lagging.
Apple (AAPL) is causing problems now. It led on the way up and is now leading to the downside as the market struggles a bit. It actually looks like rotational action into some other names like FB and Amazon (AMZN).
Although many bulls will disagree, the best thing this market can do is shake things up. The one-sided action isn't healthy. The mood is too complacent and we need to build up a little worry so we can regroup and make another thrust higher.
My goal is to protect some good recent gains. The setups are not easy after 10 up days, but it is important to keep in mind that markets at their highs don't just suddenly fall apart and go straight down.
Feb. 26, 2015 | 7:47 AM EST
The Old Rules No Longer Apply
- Embrace the idea that the market has changed.
Mindsets play strange tricks on us. We see things the way our minds have instructed our eyes to see.
If you focus on the fact that the market has been going straight up with hardly a downtick for two weeks it is very tough not to be bullish. However, if you focus on the fact that it is technically extended on light volume, it is easy to think that something negative is about to occur.
That conundrum has been at the heart of this market for nearly five years. We have consistently streaky action that has very a very questionable technical foundation but the bears and the underinvested bulls never seem to be able to come to grips with the pattern.
What works best is to just ignore the technical and the big-picture issues that keep driving the negative views. There simply is no advantage to trying to time a market turn. You navigate this market by staying focused on stock picking or by just embracing the indices and not letting them go until there is an actual change in price action.
The biggest challenge of dealing with this market is simply having the right mindset. If you keep thinking it is going to trade like it did in the days prior to the Great Recession, you will never be in tune with the action. You have to embrace the idea that the market has made a very basic change and the old rules about how things were supposed to act no longer apply.
Many traders who cut their teeth in the 1990s and up to 2008 are still struggling to understand this market action. Things as basic as volume don't have the meaning that they used to. Ten years ago there would have been very little confidence in a market that has gone straight up on declining volume like we have seen over the past two weeks. Traders who still think that way are handicapped in dealing with this market, while those who have started focusing on the market in the last five years know no other behavior.
If you are one of the traders who has a tough time embracing this market environment, the best advice I can give is to filter out the big-picture views and stay focused on individual stocks. If individual stocks are acting well, stick with them and try not to let the pundits and market timers influence you into feeling that disaster is just around the corner.
The easiest mistake to make in this market is to sell stocks that are acting well just because you are worried about a sudden collapse. The folks who tend to underperform are those who don't stick with the momentum. There are good reasons in their minds for that behavior but the need to recognize that this market operates differently than it used to.
A positive open is on the way and there are quite a few upgrades and target increases on the wires. The bulls are getting rather cocky, but there are still plenty of underinvested bulls climbing that wall of worry.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline on this article.