The highly anticipated vote in Crimea produced a "buy the bad news" reaction to start the week. The market was set up for some sort of oversold bounce and the gap-up open sucked in buyers. While the point gain was solid and breadth quite strong, the buying momentum slowed as the day progressed. Small-caps finished at the lows and quite a few stocks faded from intraday highs.
Typically, the market has done a good job of building on these bounces, although a move like this should be technically suspect. Oversold bounces used to have a fairly high potential for failure, but in the new market environment they seem to lead to V-shaped moves back to the highs more often than not.
There was good trading under the surface in speculative China names like Sky-mobi (MOBI), Kandi Technologies (KNDI), China Recycling Energy (CREG) and YOU On Demand Holdings (YOD). It's a good sign that there is still a strong appetite for these sorts of plays, as it tends to broaden out as the hot money looks for more action.
The bulls still have very hard work to put this market back on track, but days like this bode well. One of these days we will have a nasty failed bounce that traps the bulls, but usually the bears who doubted the bounce end up on the wrong end of things.
If we stay selective with our stock picks and manage positions well, it won't matter much if the bulls lose steam again. Just make sure you stay very vigilant and keep an open mind.
Have a good evening. I'll see you tomorrow.
March 17, 2014 | 1:11 PM EDT
Buyers Step Up
- I see better opportunities on the long side than the short side.
The indices came back to test the morning lows but buyers stepped up and support held. Market players continue to have little fear of failed bounces. They have learned that once the market starts bouncing, it is better to look for buying opportunities than try to fade the strength.
Of course, it isn't at all easy paying up for new positions. A lack of bullish conviction has created a supply of dip-buyers and chasers who never seem to put enough money to work. We'll see how the market closes, but I continue to see much better opportunities on the long side rather than on the short side.
Sky-mobi (MOBI) is doing exactly what a Stock of the Week is supposed to do, exploding higher on big volume. I've sold down my position a bit but I believe this stock has further to go and I'll be looking for re-entry as it develops further.
I'm still holding a very high level of cash and would like to put more to work, but I have not seen many new entry points, so I'll stay patient. More often than not, my hesitancy to rush in and put cash to work leaves me scrambling to catch up, but the action in individual stocks is still not very impressive. The indices' tendency to hold up is impressive, but that doesn't make individual stock buys any easier.
March 17, 2014 | 10:19 AM EDT
Could Be a Trend Day
- The longer the market holds up, the more the buyers are sucked in.
Back in the days when the market had normal human emotions, a gap-up open on Monday morning was almost an invitation to do some selling and fade the strength. In the "new" market, a gap-up open squeezes the bears and panics the underinvested bulls, who immediately start chasing. The longer the market holds up, the more the buyers are sucked in and, before you know it, the gap-up open turns into a trend day.
Extremely strong breadth started the day at better than 4-to-1 positive, and all major sectors, except precious metals, are in the green. Solar energy and biotechnology have big bounces and the hot money is chasing Tesla (TSLA), Google (GOOG) and Amazon (AMZN) again.
It makes sense to be skeptical of a bounce after the breakdown last week, but this market has consistently come back from that sort of action, so you can understand why the bulls are being aggressive. Failed bounces are just a rare event in the "new" market.
I've been mostly a seller as there have been good gaps. I got lucky on good news from Kandi Technologies (KNDI). E-Commerce China Dangdang (DANG) is another stock that is moving strongly and I'm looking for an entry there. Sky-mobi (MOBI), which was a new Best Idea on Friday, is my stock of the week and seeing good early action.
This market continues to run straight up and that is going to cause buying panic if it doesn't cool off. The only thing surprising about it is how consistent this pattern has been for so long.
At the time of publication, Rev Shark was long MOBI, KNDI and DANG, although positions may change at any time.
March 17, 2014 | 8:10 AM EDT
The Bulls Are Due for Some Luck
- Still, I'm not ready to say that the larger correction is over.
Luck is believing you're lucky. --Tennessee Williams
We're looking at a gap-up open in the U.S. market after voters in Crimea overwhelming voted to become part of Russia. This is not at all surprising. The market had been selling off in anticipation of this news all of last week, and it is now seeing a reflexive "buy the news" reaction.
So while the news didn't come as a shock, the crisis in Ukraine has given the market a convenient reason to correct and consolidate over the past week or so, giving the market a good shake-out at the right time after its very good February run. The S&P 500 has pulled back about 2% or so, and we have seen some of the giddy bullishness decline.
The big question as we kick off the week is whether the correction is over, and whether the market will regain its footing as it has done so many times before. Many market players were quick to declare laws week's selling as excessive and were ready to embrace another "V"-shaped rally.
The bearish view here is that the Ukraine matter is far from resolved as we await the possibility of economic sanctions against Russia that could have a negative impact on Europe. There are a number of other negative issues out there, as well, such as the continued economic weakening in China and a lack of any real growth in the U.S.
The bull's response to all these negative factors is that it just doesn't matter. This market always comes right back from these little bouts of selling, and it a mistake to be too negative for very long. They say the bears will find themselves leaning the wrong way once again, and that this market will squeeze them and force the underinvested bulls to chase.
The bulls definitely have a point. As I often say, being too negative has been the easiest mistake to make for several years now. Every time you start to think the market can't possibly recover so effortlessly once again, it does just that. The resiliency of the bulls has been remarkably consistent, and it is very tough to make the case that this time will be different.
Still, despite the market's continued tendency toward quick and easy recoveries, I am concerned about the action in individual stocks. The market has little good leadership, and that's different from what we've seen during prior pullbacks: Previously, there always seemed to be a group of key stocks or sectors that held up well and attracted buying interest.
At this juncture, key groups -- biotechnology, solar energy and China Internet-related stocks -- have all weakened, and key leading stocks such as Facebook (FB), Tesla (TSLA) and Google (GOOG) are now struggling a bit. The hot money made a run at some junk fuel-cell names, such as Plug Power (PLUG) and Ballard Power Systems (BLDP), but that now seems over and there is nothing else stepping up at the moment.
It is St. Patrick's Day, and the bulls are likely due for some luck after a dismal week. As the above quotation suggests, the key to being lucky is to think you are lucky. Even if things don't turn out so well in the long run, you can feel that you've had luck if there is some temporary change in conditions.
I'm not ready to declare that this market correction is over, but the bounce may hold up longer than the bears may think it will. The market has to prove itself again, and it has a lot of work to do, especially among key leadership names. I have plenty of money on hand to put to work, but I'm not planning to do much early chasing.