The action looked poor Tuesday, but in this market environment, that is usually a "buying opportunity." Weak action doesn't scare out any bulls; it just entices them to put more cash to work.
Today's bounce wasn't particularly energetic, but we did recoup most of the losses in the indices. Breadth was mediocre with about 3,300 gainers to 2,450 decliners and there were only about 110 new highs, but we had notable strength in Twitter (TWTR), Target (TGT) and Apple (AAPL). That helped the mood quite a bit and helped to stem worries that bubbled up yesterday.
Yesterday, the explanation for the selling was that there were growing concerns that the Fed would be more hawkish. Today we hardly heard a word about the Fed as the media stayed focused on AAPL and low oil prices.
Tomorrow is the anniversary of 9/11 and there will be some concerns about some sort of event, but the next big event for this market will be the FOMC interest rate announcement next week. I'm concerned that we are going to see those interest-rate worries bubble up again, but the bulls are doing a good job of negating them.
This market doesn't have a lot of upside energy, but it definitely has good underlying support. You may not want to be aggressively bullish, but it's even tougher to be bearish.
Have a good evening. I'll see you tomorrow.
Sept. 10, 2014 | 1:46 AM EDT
Sucking in Buyers
- Still, I don't see much I'm interested in.
The dip buyers were a bit slow this morning, but they finally showed up and gained a little traction. Apple (AAPL) is helping the bullish cause quite a bit, but Twitter (TWTR), Palo Alto Networks (PANW) and Facebook (FB) are helping as well. Breadth has improved but it is still negative on the NYSE. We haven't recovered yesterday's high, but the bounce has helped to improve the mood and has sucked in buyers.
While the action is better, I don't see much I'm interested in buying. There were dips this morning that worked well for day-traders, but I'm concerned that momentum is cooling and there will be better entries down the road.
Patience hasn't been a great strategy when it comes to buys in this market, which never seems to rest longer than a day or two. Market players are very aware of that, which is one of the reasons the dips are bought so quickly and so consistently. Failed bounces are the essence of market correction, and we just haven't had that occur.
We'll see what the bulls have into the close, but they are looking much better at the moment and are in good shape to hold on to gains. I'm digging for new buys but I see very little I want to add now.
Sept. 10, 2014 | 10:33 AM EDT
Playing Very Aggressive Defense
- If that means I'll miss a sudden upward turn, so be it.
We saw a minor bounce attempt in the market to start the day, but folks are hesitating before they engage in more energetic dip buying. The indices seem to have found some support, and we're seeing interest in such names as Twitter (TWTR), Palo Alto Networks (PANW) and IBM (IBM), but that interest is pretty mild and quite narrow.
The tendency of the market is to bounce pretty quickly when we have action like this, but many of the momentum names, particularly China-related ones, are suffering some technical damage at the moment. The market would need some pretty energetic dip buying to put things back on track.
Twice this year the market has experienced "corrections" led by the momentum names and small-caps. The senior indices held up well as stocks experienced carnage under the surface. At those points, if you had let the indices lull you into a false sense of security, you would have taken hits in individual stocks and would have needed to make up some ground.
In light of this, I'm playing very aggressive defense, and I refuse to sit through much weakness. That may mean I'll be underinvested if a sharp upward turn materializes, but I'm willing to take that risk.
So far today, I've again been a net seller, and I don't see anything much I want to add. Zeltiq Aesthetics (ZLTQ) is acting well, and there are some names I want on pullbacks, such as Tarena International (TEDU) and Bluebird Bio (BLUE). But I'm biding my time. Too many folks seem excessively confident that a quick bounce will bail out the market very quickly. I'm not so sure about that.
Sept. 10, 2014 |9:10 AM EDT
- Was yesterday's action a warning shot or a bump in the road?
"Every man I meet wants to protect me. I can't figure out what from." --Mae West
Is it time to focus on the protection of gains?
The Apple (AAPL) product announcement created some excitement on Tuesday, but it contributed to some profit taking in the broader market, which had already been growing nervous over a more hawkish Federal Reserve. The market has been holding up fairly well due mainly to strong speculative interest in high-beta names, but yesterday the hot money backed off and we had a rough afternoon.
While the major indices haven't made much progress in the last couple weeks, there hasn't been any major technical damage. We've seen good underlying action, and it was actually healthy that the market has had some consolidation.
The big issue now is whether Tuesday's selling is a warning that a topping process is now taking place. We've witnessed a few days like this over the last few months, but the bears have never been able to gain any real traction. Things looked poor in early August, for instance, but ultimately the indices regained their footing and produced yet another "V"-shaped bounce.
What is different this time is that nervousness is growing over a more hawkish Fed. In particular, the concern is that when the Federal Open Market Committee issues its interst-rate decision next Wednesday afternoon, it may drop the language about rates staying low for a "considerable time." That phrase has given investors great comfort for a very long time, and when it disappears it is very likely to create some anxiety over how quickly rates will start to rise.
The bears are convinced that a more hawkish Fed will eventually be the catalyst for a sharp market correction, and they have over-anticipated this for many years. That said, the concerns are increasing now that the Fed is nearly finished tapering off its bond-buying program.
The question now is whether we'll consider Tuesday's action as a warning that should push us toward more defensive action, or whether this was just another brief selling squall that will quickly blow over. The bulls, who have stuck with this market and haven't been easily scared away, have done well -- but, after the run this market has enjoyed since early August, it will be tough not to play some defense and protect gains.
My primary advice recently has been to let the action in individual stocks be your guide. We've seen some very good pockets of momentum, and there has been strong trading in many speculative small-cap names. The indices haven't reflected it, but the underlying action has been solid. Markets that act like this don't usually just fall apart and go straight downward. There is still good underlying support and, again, the averages suffered any major technical damage yet.
On the other hand, when momentum stocks and small-caps names turn, they can fall very quickly, and the hits can add up very fast. While I try to be reactive to the market I tend to error on the side of being a bit more anticipatory when I have good gains to protect.
My No. 1 goal is to always keep my accounts as close to their highs as possible. If you can avoid giving back much when the market turns to the downside, you will be in great position to produce superior returns. This market hasn't really favored that approach since the pullbacks have been so shallow, but it still is the prudent approach when conditions start to shift.
So the bears have some negatives to work with today, but underestimating the resilience of the bulls has been a major mistake for a long time. Stay extra vigilant and focus on keeping accounts near their highs.
We're looking at a little early bounce, and an analyst upgrade of Twitter (TWTR) is producing some interest.