It was an uneventful day with some mild selling pressure but that isn't such a bad thing. We could use some consolidation before we deal with some news events for the remainder of the week.
Tomorrow is the prime opportunity for some end-of-the-month window-dressing, and then on Wednesday we will see the Federal Open-Market Committee policy statement on interest rates. Any talk about "tapering" will give the bears some ammunition.
While there was some tired action today, overall the market continues to hold up extremely well and hasn't done anything to justify an aggressive bearish posture. The bears are still trying to call a top, but nothing in the action today suggests that the market is about to break down. The bears need some sort of catalyst, and so far there hasn't been anything to scare the dip-buyers away.
There is an interesting tension in the market right now, as underinvested bulls would like to see some buyable dips, but they are also afraid they will miss out if they don't stay in the market. While we are extended and there are plenty of signs that some weakness may be forthcoming, the smart move has been to stay bullish and to keep on riding the trend.
We have some interesting earnings after the close but nothing that is likely to be market-moving. It is a good time to stick with stock-picking and not spend too much energy trying to time market direction.
Have a good evening. I'll see you tomorrow.
July 29, 2013 | 13:51 PM EDT
Trouble Under the Surface
- Except for some well-known names, momentum favorites are struggling.
Last week, the action under the surface was stronger than the indices, as many individual stocks traded strongly and hit new highs. Today we have the opposite. The indices are covering up broad weakness under the surface.
Part of the reason is that Apple (AAPL), with its heavy weighting in various indices, is performing well, but with the exception of Tesla Motors (TSLA), Facebook (FB), Baidu (BIDU) and a couple others, the momentum favorites are struggling and there isn't much of interest in small cap land.
Typically, when we have a weak day like this, the bears start becoming excited about the idea that a top is in and that the downside is going to start coming fast. Of course, they have been consistently wrong about such things, but you can bet they are going to be ready to declare that the top is in once again.
The dilemma of the market is that we really haven't had enough weakness to bring in the value hunters, and it is too slow to attract momentum players who may want to look for shorts. There is a lot of churning, and it doesn't help that many folks are anxious to take some vacation if the market ever shows signs of slowing down.
Don't forget that we have the Fed, end-of-the-quarter window-dressing and jobs reports coming up this week, so there are some catalysts to move things around. I'd be remiss if I didn't mention the old adage "Don't short a dull market."
July 29, 2013 | 10:35 AM EDT
My Long Inventory Is Light
- I'm hoping to see some weakness in resets.
We have a mixed start to the week, with many of the liquid momentum names weaker and overall breadth running about two gainers to three losers.
The only major sector in the green is solar energy, due to a European Union deal. There is some strength in names like Apple, Facebook and Tesla, but it is narrower leadership and the action under the surface is weaker than the indices.
We are hitting the lows of the day as I write and the bears are starting to perk up a bit as profit taking is finally picking up. The momentum under the surface lately has been very impressive, but finding new entries has been nearly impossible unless you are willing to buy extended stocks and have very strong bullish conviction.
As my style is to make partial sales into strength, my long inventory is rather light, so I'm hoping to see some weakness in resets. Until the market corrects I'm going to find it very hard to put much money to work.
One stock I'm keeping an eye on here is LightInTheBox Holding (LITB), which was my stock of the week last week. It is pulling back now, but if it makes another run at the $18 resistance I'll be looking to add to it.
July 29, 2013 | 08:16 AM EDT
TA New Crop of Bears Arrives
- But there are just too many opportunities in individual stocks.
Happiness is a continuation of happenings which are not resisted. -- Deepak Chopra
We have a full schedule of economic reports and earnings in the week ahead and the big question is whether they will serve to keep the rally going or will they provided an excuse for some profit taking to occur?
The bears have been anticipating some correction action for a while, but have been unable to make any progress. What was particularly interesting last week was while the indices paused, the action in many individual stocks was quite strong.
It is obvious that there is a high level of performance anxiety and many traders are trying to make up for it by chasing liquid, high-beta names. This market has great frustration for many money managers who never seem to have the opportunity to put money to work on pullbacks. The only way to get in is to chase, and if you aren't comfortable buying high-relative-strength, extended stocks you are going to have a very hard time.
While there are hundreds of earnings reports due out this week the most likely market catalyst is going to be the Fed once again. We have the latest policy decision on Wednesday and we are going to hear plenty of talk about tapering of bond buying once again. The market has done a pretty good job of shrugging it off, but the reality of an actual slowdown in bond buying as soon as September could still have an impact.
We also have the July jobs news due out this coming Friday and that is going to have an impact on the tapering debate as well. Many market players believe that good economic news may be bad for the market, which explains why this market keeps running, although economists continue to cut GDP growth predictions.
While many stocks continue to act extremely well, I am hearing more and more bearish calls from pundits. They aren't all permabears either. The bears have been unsuccessfully fighting this market all year, but there is a new crop of negative analysts who are looking for tapering by the Fed, the renewal of the fiscal debate in Washington and slowing economic growth to finally put a top in this market.
As I've written many times, there are plenty of great bearish arguments, but as long as we have positive price action it is mistake to pay too much attention to them. Sooner or later the market will undergo a severe correction and we'll need to run for the safety of cash, but the mistake is to keep hoping and anticipating it. There are just too many opportunities in individual stocks to be obsessing about potential negatives. There will be plenty of time to adjust when the market shifts, but for now the trend is up and the smart move is to stay with it as long as possible.
We have some minor weakness to start the week, but dip buyers are hungry for action and they are unlikely to let things slip very much. It isn't an easy market, but it is even harder if you are bearish. Also, don't forget the end of the month is upon us and that means we are likely to see some window dressing.