The bears tried to build on Wednesday's weakness but better-than-expected earnings reports and persistent dip buyers kept the indices in the green. The indices didn't do much, but breadth was solid and underlying support was impressive. A big supply of stocks continue to make new highs and momentum buyers are not backing off, although they are not chasing as much.
The star of the day was Facebook (FB), which is finally acting like the momentum stock it was anticipated to be before its ill-fated IPO. The hot money poured into FB today and it should now be a regular on the trading radar of momentum players.
It feels like this market has been walking the high wire for weeks, but the bears keep getting squeezed and the underinvested bulls support it. There are lots of reasons why it should rest, but as long as the market holds up, the bulls are going to keep pushing.
I've been writing for a while that the great temptation in this market is to predict a top. It certainly isn't a hard argument to make, but the smart move has been to forget timing and just stick with the trend and make money as long as you can. When the inevitable turn does come, we can worry about it then.
Have a good evening. I'll see you tomorrow.
July 25, 2013 | 2:07 AM EDT
A Trader's Lament
- This action is too strong to short but too slow to chase.
The market continues to see very impressive underlying support. The sellers have applied pressure, but before any real damage can be done, the dip buyers show up and take it to new intraday highs. There is more worry about missing upside than there is about being caught in a market turn.
Breadth has improved to around 3,050 gainers to 2,300 decliners and big-cap momentum names are leading; Tesla (TSLA), Baidu (BIDU), Facebook (FB), Amazon (AMZN) and Chipotle (CMG) continue to attract investors trying to catch relative performance.
While the market is holding up extremely well, upside momentum is slowing. Consequently, the action is too strong to short but too slow to chase. I've noticed recently that chasing big moves has become more difficult.
I have started an FB position because I think this is going to be on the radar of momentum players. I also started adding back Himax (HIMX), which is selling off a little today. Its joint venture with Google (GOOG) is likely to keep it in play.
July 25, 2013 | 10:30 AM EDT
Dip Buyers Do Their Thing
- And bears run scared.
The dip buyers pounced on early weakness and the bears are on the run again. A day like yesterday often emboldens the bears, who were quick to conclude that one poor day means a top is in. What they forget is the huge supply of underinvested bulls anxious to jump in on the slightest weakness. Until those dip buyers are trapped a few times, they are going to keeping doing their thing because it works so well.
Breadth on the NYSE is slightly negative but the Nasdaq is leading due to technology and biotech strength. Homebuilders, retailers and banks are keeping the pressure on the NYSE. Strength in Facebook (FB) is causing sympathy action in Internet-related plays, and that is where the hot money is hunting.
I'm having a very tough time putting new money to work. There are few setups, and chasing has not worked lately. For example, Apple (AAPL), which had a big gap yesterday, is seeing pressure today. Most of the stocks that have gapped up on good earnings are not following through for long.
LightInTheBox (LITB), which was my stock of the week, has not performed well this week, but if it moves back above $17, I'll add back to my position.
July 25, 2013 | 7:44 AM EDT
Downside Would Be Very Healthy
- But don't underestimate the power of the dip buyers.
A change is as good as a rest. -- Proverb
Despite a good earnings report from Apple (AAPL) on Wednesday, the S&P 500 had its worst action since the current bounce started in late June. Last night we probably had the best earnings reports of the season with Facebook (FB), Baidu (BIDU) and TripAdvisor (TRIP) all trading up sharply. But despite the good news, there is softness in the indices again and virtually all overseas markets are trading down. Some weak earnings reports in Europe are hurting sentiment, there is worry about economic reports and bond yields are pushing higher.
The bears are extremely anxious to declare that the top is in, but so far the action is nothing more than some healthy consolidation after a good run. We have gone straight up for nearly a month and this is the first time during that run that the S&P500 has had two successive negative days.
It isn't just the bears that are anxious for some downside. The bulls have had a very difficult time putting money to work, as we ran straight up, and many are hoping for some more downside so they can buy some dips. The selling has been pretty routine so far and there doesn't seem to be any real panic or worry.
The good news for the bulls is that two stocks that they love to love, AAPL and FB, surprised with good reports and are now attracting some momentum players who are hoping they will continue to run. These stocks have been major laggards all year, so it will be interesting to see if their resurgence will impact the mood of the market.
Overall, earnings season has not been very impressive. But last night we had some particularly strong reports and that is going to give us some good trading action in individual stocks. The strength in those names may be more pronounced as market players focus on them and move out of other names that have grown tired as they have become more elevated.
As I've been saying for a while now, this is not an easy market to trade. We are extended on light volume and badly in need of some consolidation. On the other hand there are so many underinvested bulls looking for long exposure that the dips have been quite shallow. Yesterday, we actually had a trend down day for the first time in over a month and I'm actually a bit surprised to see some follow through this morning. I don't believe the dip buyers are going to go away at this point and I'll be looking for some bounces, even though I'd much prefer a more severe downside.
Nothing could be healthier than some downside right now, but this market seems to take great delight in making sure that we have to constantly chase it to put money to work. We'll see what the bears can do with this open, but don't underestimate the power of the dip buyers.