Don't Expect a Strong Market to Suddenly Collapse

 | Oct 03, 2017 | 10:31 AM EDT
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Strong markets stay sticky to the upside. I've written that many times this year, and it is still the key to navigating this market. You should not expect that a strong market is just going to suddenly collapse. A change in direction tends to develop slowly when there is as much momentum as we have now.

The indices aren't as frothy as they were on Monday, but there is still plenty of strength this morning. Breadth is solid at about 3600 gainers to 2500 losers, with new highs hitting around 680 as I write. The FAANG names are still lagging a bit, but the Nasdaq 100 ETF (QQQ) is outperforming the Russell 2000 ETF (IWM) .

As I discussed in my opening post, the dilemma of the market at this point is that it is very difficult to find new entry points. I made one new buy this morning, which was to add to a position in Zogenix (ZGNX) following a secondary offering priced at $37.50. I've also cut back a few positions that seem to be quite extended at this point. Jupai Holding JP, for example, has been a great trade and I'm taking some partial gains.

The net result is that I've cut my exposure, although I'm not particularly bearish. I'll be happy to see the market dip, but I'm not expecting any major turn.

This approach is why so many bulls are chronically underinvested. They constantly have cash they need to put to work. This is a big part of the reason that sentiment never really gets euphoric. It is just too hard to keep cash at work.

I'll be looking for some new buys, but until we have some sort of dip it won't be simple.

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