"The foolish man wonders at the unusual, but the wise man at the usual."
--Ralph Waldo Emerson
After a two-day celebration of a dovish Fed, the indices look ready to rest. Weakness in oil and mediocre PMI reports in Europe are providing some convenient excuses for profit-taking. Facebook (FB) is dipping on news that it providing misleading data on video viewing and Twitter (TWTR) is being hit on a downgrade.
Overall, the market is simply repeating the cycle we have seen many times in recent years. Investors celebrate dovish central bankers but then they grow a little worried when they continue to see the weak economic news that kept the bankers from hiking rates.
Typically, the market is forgiving of the weak economic news because it is so addicted to low interest rates, but you can't help but to wonder when this dynamic is going to shift. The bears were thinking that it was going to happen on this last meeting but they were wrong once again.
The market is back to very familiar territory. Big-cap technology names, including Amazon AMZN, Alphabet (GOOGL) and Apple (AAPL) , are driving the Nasdaq while speculative interest in small-caps, energy and mining is driving the Russell 2000. The S&P 500 and Dow industrials are lagging in part due to financials that need a steeper yield curve.
Action like we've had this past week tends to be more about market timing than stock picking. When central bankers drive the indices, stocks move in tandem and there is less opportunity to outperform by focusing on individual names. Once we move beyond the focus on macro matters, we should be able to find an edge again picking stocks rather than timing the market.
When the market was in the long trading ranges in July and August, we had some excellent stock picking. Names such as Acacia Communication (ACIA) , Lumentum Holding (LITE) , Oclaro (OCLR) and Weibo (WB) ran up as the market did nothing. Traders were looking for opportunities in individual stocks because they couldn't make much money trying to time the indices.
It shifted back to a macro-timing market when it finally broke out of the long trading range and the focus turned to what the central bankers would do. Even though the market was very strong yesterday, there wasn't much excitement because the focus was still on indices rather than individual stocks.
With the Fed on hold for at least a month, I'm looking for more trading-range action and a greater focus on stock picking. We are due for a rest and still have negative seasonality to deal, but this market has proven it has excellent underlying support.
Don't allow yourself to be sucked into the market-timing trap again. The anticipatory bears failed miserably again into the Fed news. One of these days this market will correct, but rather than try to guess when, stay focused on the price action. When it changes, then so will we.
