The major indices haven't done much for a couple of weeks but strength in individual stocks has helped to produce a positive tone. It has been a good market for trading individual stocks, but the character of the action shifted today. A few momentum names held up but the action in small-cap stocks was very ugly and many of the best momentum stocks pulled back sharply.
Action like this raises the question of whether this is finally the start of the long-awaited topping process. Typically, a flurry of selling like this hasn't led to any substantial downside momentum, but twice this year momentum and small-caps stocks have sold off sharply while the senior indices have held up. If you didn't take defensive action quickly, you found yourself in a hole with quite a bit of work to do to recoup the pullbacks.
Selling like today's should have triggered stops and pushed you to increase cash levels. There really is no other choice for prudent traders than to cut exposure. Whether it turns out to be just another short-lived dip really isn't the issue. You have to protect capital when things slip in this manner.
The key to this market has been the good action in individual stocks. Now that we have seen a shift in that action, we need to tighten up defenses and be alert to the possibility of more downside. The indices have rolled over a bit now and the weakness is confirmed by broad selling in key stocks. Increased caution is warranted.
Have a good evening. I'll see you tomorrow.
Sept. 09, 2014 | 1:59 PM EDT
No Boost From Apple
- The market isn't so hot, but hasn't suffered any technical damage.
Although much of the media coverage is the Apple (AAPL) product announcement, it has been a lackluster day for the market. Breadth has been running solidly negative all day and the pockets of momentum we have been enjoying for a while have dried up. A few things like Mobileye (MBLY), GoPro (GPRO) and Netflix (NFLX) are moving, but it is much narrower and small-caps are lagging again.
The best thing the market has had going for it lately was terrific action in individual stocks. If that momentum continues to cool, it is going to be a problem for the broader market. Recently, the indices have lagged the momentum leaders, but that can shift quickly if the hot money starts to worry and locks in gains.
A few plays on AAPL component stocks such as InvenSense (INVN), NXP Semiconductors (NXPI) and GT Advanced Technologies (GTAT) are attracting action, but it is dull day of trading overall. Probably the best thing that could happen from a trading standpoint is more aggressive downside to shake things up, but hoping for that has been futile. This market isn't looking too hot, but it still hasn't suffered any real technical damage so far.
Sept. 09, 2014 | 10:20 AM EDT
Pocketing Some Gains
- The market is looking rather sloppy, so I'm exercising caution.
There are a few pockets of momentum out there -- in such stocks as Mobileye (MBLY), GoPro (GPRO), Baidu (BIDU) and Netflix (NFLX) -- and such names as Facebook (FB), Microsoft (MSFT) and Apple (AAPL) are green. However, profit taking is hitting many names, and breadth is running better than 2-to-1 negative. All major sectors are in the red, and the "hot money" is starting to back off a bit.
Momentum can fizzle out quickly, and that is why I like to take partial profits into strength when I can. However, in this market the dip buyers have been so aggressive that it has been tough for folks to reload if they've sold down too quickly. Locking in gains used to be a much better strategy -- in the days before the central banks began producing unending bids.
The market is making new intraday lows as I write, and that should trigger some stop-loss orders, but the pattern lately has been for the dip buyers to show up around midday and give the market support. There is still a lot of speculative interest out there, so many of the hot names just don't stay down for long.
I've been a seller this morning, as I want to be careful and hold on to some very good recent gains. The market is looking rather sloppy right now, but that may help create some better opportunities soon. One of the hardest things about trading this market in recent years is that we don't see healthy shake-outs that set things up well again.
Sept. 9, 2014 | 8:40 AM EDT
Strong Spec Action Under the Surface
- Folks remain anxious to get their hands on good relative strength.
Enjoy the little things in life because one day you'll look back and realize they were the big things. --Kurt Vonnegut
While overall market volatility has been extremely low for two weeks now, strong speculative support remains under the surface. Stocks such as Facebook (FB), Twitter (TWTR), Tesla (TSLA), Mobileye (MBLY) and Baidu (BIDU) are representative of the hungry-for-momentum names. The pundits may question the health of the major indices, but market players still are anxious to put money to work in stocks with good relative strength.
We hear the cliché that it's a "stock picker's market" far too often, but that nonetheless seems to be particularly true right now. If you aren't in the right stocks, this market looks very different from how it would if you were in the speculative favorites.
The bears often proclaim that strong speculative interest is a contrary indicator that signals that a close-approaching top -- but that is an extremely ineffective way to try timing the market. Quite often, speculative interest will broaden out as traders search for more ways to attain relative strength.
In a market like this, you simply stick with the stocks that are working for as long as you can and try to ignore all the timing geniuses who are looking for attention. The most difficult aspect of the market is that volume is thin, and we'll see some very slow action at times. It is quite easy to think that this signals a change in market character -- but the fact is that the indices keep finding support, and the hot money is sticking with the key momentum names.
Otherwise, earnings season is over, and there isn't much economic news on the calendar, so the news wires are a bit slow. Unfortunately that means we are going to hear far more than we'd like about Apple's (AAPL) new product introduction today. Apple shares have not acted well in anticipation, and if they doesn't perk up they may act as a drag on the indices. Luckily Microsoft (MSFT) stock seems to have stepped up to offset that damage.
Again, more broadly, this market is all about picking good momentum and speculative names. The indices' performance is not very impressive, but the action in many individual stocks is quite good. Stay selective and keep a close watch on your positions. When they start to shift, that will be the time to become more negative about this market.
Early indications are for a very flat open, but that has been a good signal for individual stock picking.