Better-than-expected economic data out of China and optimism about Syria helped the bulls to their sixth straight day of gains. It is yet another V-shaped bounce that crushes the bears and frustrates the underinvested bulls
It really is quite amazing how this dynamic has been repeated so often. The bears were hopeful that higher interest rates and the potential for Federal Reserve tapering would return us to more normal market action, but the machines are still in control, and they are doing a great job of keep the humans off balance.
Can we keep on running up from here? You bet we can, and if history is a guide, we will. It is the same dynamic as climbing a wall of worry. The bears have to keep covering, and that gives us support, and the underinvested bulls keep inching in just in case things keep running. Neither group is very happy about it, but they feel they have no choice, and that keeps us going.
The hardest thing about this sort of action is to keep putting money to work. If you are a buy-and-holder, it doesn't much matter, but if you are an active trader who needs new ideas each day, the opportunities start to thin out in this sort of market.
The best advice I can give is to forget the market-timing and just keep plugging along. That is what has worked most of the year, and it is working that way again.
Have a good evening. I'll see you tomorrow.
Sept. 10, 2013 | 1:05 PM EDT
Apple Takes Center Stage
- We'll likely see volatility in the stock.
We have one of those gap-up-and-churn days, where the indices hold steady but are unable to gain more traction. Breadth is running a bit less than 2-1 positive and there is plenty of green, but the frenzy at the open has subsided. It is always interesting how the market can be so strong, but I see little discussion of new buying.
href="https://realmoney.thestreet.com/quote/aapl">AAPL) is softening as its new product presentation is about to start and that is putting pressure on the indices. It isn't too surprising that there is some "sell the news" action given the move since the beginning of August. We'll see volatility there in a few minutes.
I have very little new on my radar but I'll be looking for additions into the close. This move feels a bit tired but don't underestimate the anxiety of underinvested bulls. They are going to keep bids under the market and are unlikely to let us pull back much.
Sept. 10, 2013 | 10:24 AM EDT
Putting Cash to Work
- I'm going to keep digging and stick with longs.
The bears tried to fade the gap-up open but that has not been a workable trade for a while. The market tends to have a minor dip after the gap, but too many folks are looking to add long inventory to stay down for long.
This market is a story of poorly positioned traders. It isn't just bears being squeezed, but also bulls that never seem to be sufficiently long. Contrarians may argue that sentiment is too giddy, but what they are missing is that those bulls still have unused buying power. Using sentiment as a contrary indicator only works if people have already put their money to work and are now just cheering the action. That isn't the case with this market.
I'm one of those bulls looking to put more money to work. I added to a position in China play Zhone Technologies (ZHNE) and I have a Shark technical buy on biotechnology play Immunomedics (IMMU). Century Casinos (CNTY), which I have mentioned previously, continues to develop nicely. Facebook (FB) is exhibiting a little weakness and I'm watching that for a potential addition as it finds support.
I'm going to keep digging and stick with longs until I see a good reason not to.
Sept. 10, 2013 | 8:47 AM EDT
The Bulls Are Back in Town
- Don't rush to bet against them.
Perfection is not attainable, but if we chase perfection we can catch excellence. --Vince Lombardi
The bears' big hope was that the rise in interest rates and the start of tapering by the Fed would change the character of the market action. We have been riding a wave of cheap cash for years and the thinking was that when interest rates start to go up it would be an end to relentless rally.
Perhaps that will eventually come to pass, but rather than focus on the rise in rates, the market is celebrating a stronger-than-expected economy in China and an economy in the U.S. that is still slow enough to prevent the Fed from being very hawkish.
What is most amazing about the market is that it is producing yet another one of these V-shaped bounces that we have seen so often in the last three or four years. This morning we are trying to fill the gap down that was produced in mid-August. In a typical environment, the bears would be talking about this being important technical resistance. By the concept of overhead resistance produces laughter among bulls these days.
We used to think that low-volume bounces into resistance would bring in sellers, but these days action like that seems to produce an increasing supply of buyers. I suspect that the computer algos are programmed to keep buying when these V-shaped conditions develop so they can exploit the poor positioning of both bulls and bears.
It is downright giddy out there this morning as the pieces fall into place for the bulls. Worries about Syria are easing, tapering fears are abating, China is coming back and even Apple (AAPL) is back in the headlines with its new product announcements. Even Investor's Business Daily has the market rating back in a "confirmed uptrend."
Of course, when things start feeling this positive you can bet the contrary bears are going to start trying to call a top again. You might think they have learned a lesson this year about trying to anticipate a turn but they just can't resist the game. If you have been paying attention, you have learned that the way to go is to just stay with the trend as long as you can and not get negative until you actually see poor action. Don't anticipate tops and you are more likely to make money riding the trend than the folks who seek the glory of being a top-caller.
We have a big open and that usually means some folks will try to fade the move. Typically, that may work for a few minutes but so many folks who want in that there is usually quick support. Don't rush to bet against the bulls but taking partial profits into a big gap is a prudent move.
It is going to be interesting to see what happens we fill the mid-August gap in the SPDR S&P 500 (SPY). The bulls are back in town and they don't look like they are in any rush to leave.