Hot Pockets of Action Lead the Chase

 | Aug 15, 2016 | 4:22 PM EDT
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The indices closed a bit weak and the FANG names acted poorly, but there continued to be some hot pockets of speculative momentum. China-related stocks were particularly frothy as names like Yirendai (YRD) and Xinyuan Real Estate (XIN) were chased sharply higher.

It wasn't just the China names that were active. Breadth was over 2-to-1 positive and there was some aggressive chasing of stocks that were already extended, such as Resolute Energy (REN) , Twilio (TWLO) and Acacia Communications (ACIA) .

The bears argue that this sort of speculative fervor is a sign that the market is overheated and heading for a fall. The bulls tell us this action is a function of too much idle cash looking for a place to go. I believe it is probably the combination of a number of factors and that it's a mistake to use it as an indicator of what is going to happen in the near term. We certainly could use a rest, but when we have action this strong, it doesn't produce a sudden top.

The easy thing to do in this market is to keep anticipating that the action won't last much longer. It obviously is going to lead to some corrective action at some point, but the best approach is to simply stay with the trend as long as possible, manage position and forgo the temptation to call a turn.

This has been some of the best stock-picking action in a long time and that has to make you a little worried, but you can easily think yourself right out of some good opportunities. Stick with what works until it stops working.

Have a good evening. I'll see you tomorrow.

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