Twice this week the bears had an opportunity to roll this market over and both times they failed.
On Tuesday, the selling picked up as Fed Chief Ben Bernanke appeared before Congress. He didn't say anything negative, but he didn't say anything new either and we saw a bit of a "sell the news" reaction. A number of the high momentum stocks acted poorly and some of the anxious bears were ready to proclaim that the top was in. Unfortunately for them, the market bounced right back on Wednesday and kept on running on Thursday. The bears whined about how economic growth was slowing but the market doesn't seem to care about "minor" issues like that.
On Thursday night, the bears were licking their chops once again as poor reports from Microsoft (MSFT) and Google (GOOG) looked like they may trigger some broader selling. MSFT was pounded but GOOG cut its losses and strong action from stodgy GE kept the market on track.
The great difficulty for the bears is that there is just too much underlying strength. The underinvested bulls who are desperate for some relative performance just won't let stocks go down for very long. They have missed out on so much upside that they are afraid it will happen again -- even though the market may seem tired and in need of a rest.
The bears continue to have plenty of good arguments, but they just don't matter. Economic news is tepid, earnings season has been pretty poor so far and, technically, the market is still extended and in need of consolidation. It has been going straight up for nearly a month now and common sense would suggest that it can't continue for much longer. Those arguments certainly do make sense, but the bulls are making money and they really don't want to stop.
Next week we have a full calendar of earnings and, if the reports aren't better, the bears may have another chance to roll this market. However, until there is some actual weakness, betting against this market is nothing more than an exercise in hope.
Have a great weekend. I'll see you on Monday.
July 19, 2013 | 10:50 AM EDT
Trying to Knock Out Quick Gains
- I'm still focused on stock-picking.
Given the weak earnings from Microsoft (MSFT) and Google (GOOG), the market is still holding up remarkably well. GE (GE) and Chipotle (CMG) are helping the bullish cause, but breadth is weak and we need to keep an eye on that. The weakness in technology is going to offset pockets of strength in other places and will have an impact on sentiment.
I'd love the opportunity to short the indices aggressively but I still see no edge in that game. I'm focusing on individual stock-picking and trying to knock out quick gains like Silicon Graphics International (SGI), which I mentioned yesterday morning.
Sooner or later this market is going to correct, and I'll be very quick to hit the eject button, but, for now, I am going to keep hunting for long plays. One stock I'm watching quite closely here is Noodles & Co. (NDLS), which may see some sympathy as CMG keeps running up. Another stock I like I is LightInTheBox (LITB), but it is thin and volatile and needs signs of good underlying support to keep moving.
There continues to be very good underlying support and the opportunities are on the long side. The anticipatory bears suffer tremendous opportunity costs. It's better to stay focused on longs until there is a clear change in the market character and they stop working. Trying to predict a turn is too hard and it keeps you from profiting from individual opportunities.
At the time of publication, Rev Shark was long SGI, NDSL and LITB, although positions may change at any time.
July 19, 2013 | 8:10 AM EDT
Stick With the Momentum
- And stop worrying that a big crash is just around the corner.
Consistency is the hallmark of the unimaginative. --Oscar Wilde
The most notable thing about this market has been its amazing consistency; it just keeps running up and nothing seems to have any impact.
This morning, weak earnings reports are pressuring the market and the question is whether it will last long enough to finally cool things off. Google (GOOG) has already battled back as analysts issue positive comments, but Microsoft (MSFT) continues to selloff as the market grapples with the theme that the PC is dead.
In the old days, we'd be talking about a "sell the news" reaction to earnings as the market has run straight up and becomes technically extended as news hits. That would normally be a recipe for profit taking, but in this market that just leads to holding too much cash and missing further upside.
What confounds the bears is the obvious economic slowdown is having no impact on stocks. In fact, the recent cuts in GDP by economists only make the market more confident that Fed chief Ben Bernanke is going to keep working to keep interest rates as low as possible.
Technically, logically and fundamentally, this market is in position for a pullback, or at least consolidation. That was the case yesterday as well, but it surprised many market players with a continued ramp. Once it began to run, it fed on itself. Bears were squeezed and underinvested bulls had no choice but to buy again.
The main thing driving this action is many folks are underinvested and anxious to rack up performance. It has been extremely difficult to keep pace with this market, especially if you are trying to trade it. There has been no normal ebb and flow and, as I discussed yesterday, the action has favored the buy-and-hold crowd.
What is so challenging is how easy it is to anticipate weakness, especially as it is increasingly difficult to find individual stocks that are set up technically. In a normal advance, we wouldn't go up every day but would have backing and filling, which allows charts to develop solid foundations. We don't have that anymore, and it makes many people even more anxious to call a top. The more parabolic the action, the more anxious people are to predict the day of reckoning.
The big picture is extremely confusing. I find it is better not to dwell on it but to stick to picking individual stocks and not worry about trying to time a top. The best traders are oblivious to arguments about why this market can't continue to trend higher. They stick with the momentum and don't constantly worry that a big crash is just around the corner.
Google has already recovered substantially from last night and futures are steadily moving back up. Weak earnings would be a good excuse to selloff, but too many folks are desperate for long exposure and that prevents a lasting selloff.
The top callers are going to be active again today, but stay focused on finding good individual stocks. It is becoming harder to find them, but they are still working.