In recent years, active fund managers have chronically underperformed the major indices. There are a number of reasons for this, but one of the main problems is that counting on downside momentum and playing strong defense has seldom been rewarded. Active traders tend to gain relative performance by avoiding downside, but downside is so rare in this market there is seldom a chance to benefit from it.
After the weak close Tuesday, it may seem logical to look for downside momentum. While the action this morning isn't that positive, there is underlying strength and positive breadth. Again, biotechnology is leading, which reflects a strong appetite for speculative action.
The key is to continue watching for lower lows in the indices. If the dip buyers start to step away, a test of key support is likely to occur. The tricky part of this action is that underlying buyers keep popping up.
This is still just a routine pullback and actually helpful in giving us better chart setups. We badly need this sort of action periodically, but it has been rare, as there always seems to be fear of being left behind.
I'm doing small trades this morning in Medivation (MDVN), Yirendai (YRD), Centrus Energy (LEU) and Second Sight Medical Products (EYES). I do like the fact that I'm seeing more charts of interest but it would be helpful if sentiment were a bit more negative.
Please note that due to factors including low market capitalization and/or insufficient public float, Real Money considers LEU and EYES to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
