The market had more mood swings than a middle school cheerleader this week, but finished with minor gains.
The S&P 500 managed a gain of 0.74% while the Nasdaq finished down 0.42%, but it was a quite a bumpy ride, with some panic selling on Tuesday and euphoric buying on Thursday. It was all politics all the time with individual stock picking taking a backseat to anticipating the next headline out of Washington.
What was most notable about the action the last two days was the confidence of the buyers that a deal would be struck in Washington. There is nothing definitive, but you sure wouldn't know it from the action in the market. You have to wonder if we are setting up for some sort of sell-the-news reaction, especially if the deal that is made simply kicks the can down the road once again.
The good news is that earnings season starts next week and that will shift our focus, at least to some degree. Up until this past Tuesday, it has been a great stock pickers market, but the politicians managed to mess that up. Nonetheless, there appeared to be some renewed momentum action today and we'll see how well that holds next week.
We still have the risk that things could fall apart in Washington, but there does seem to be plenty of motivation to hammer out some sort of compromise. We may have already more than priced that in, but removing the uncertainty is going to help to return the focus to stocks.
Have a great weekend. I'll see you on Monday.
Oct. 11, 2013 | 10:28 AM EDT
Momentum Money Is at Work
- But the political risk is still high.
It is quite impressive how well the market is holding up while the political debate in Washington continues.
The market is acting like it is a sure thing, which is tough assumption to make when you are dealing with politicians. In any event, the indices have some minor gains, breadth is slightly positive and the big-cap momentum names are acting pretty well.
My main impression from the action is that traders are tired of politics and simply want to trade. Up until Tuesday, we had a great market for trading and stock picking and it sure looks like there is a strong desire to return to that sort of environment. The fact that earnings season is starting motivates stock pickers even more.
Under the surface, there is speculative action in junk names like Ku6 Media (KUTV), China Ming Yang Wind Power Group (MY) and a number of others. I'm looking at Bona Film Group (BONA) as a potential beneficiary of that action.
My two biggest positions right now remain Facebook (FB) and Sarepta Therutiapecs (SRPT). I'm looking for more inventory, but I'm not going to be too aggressive since the political risk is still quite high.
Oct. 11, 2013 | 8:28 AM EDT
Stay Vigilant and Flexible
- This action has been tricky to navigate, but keep plugging away.
Let us move from the era of confrontation to the era of negotiation. --Richard M. Nixon
Anticipating a deal on the government shutdown, the market went wild on Thursday. It continues to hold up very well in the early going despite the fact that nothing specific has been agreed upon. There appears to be great confidence that it is only a matter of working out the details and there is some talk that the shutdown will end on Monday.
We may also have to go through another battle in six weeks if no longer-term agreement is made, but for now the market is seems happy to have this crisis come to a temporary end. It is likely to become contentious again very fast but with the potential for a debt default off the table, we can relax for now.
The market will continue to stay focused on the headlines out of Washington but at least we might be able to shift our focus back to individual stocks for a while. A political crisis like this renders technical and fundamentals useless as we dance to the headlines, but, eventually, those factors always come into play again.
The shift back to individual stock picking is coming at just the right moment as earnings season is starting in earnest. There are a couple good bank reports from Wells Fargo (WFC) and JPMorgan (JPM) but the real fireworks begin next week when we hear from the likes of IBM (IBM), Intel (INTC) , Yahoo! (YHOO), Google (GOOG) and Chipotle Mexican Grill (CMG).
Unfortunately, we still have the potential for landmines out of Washington and we won't be able to simply focus on picking stocks. This past week has been extremely chaotic with both bulls and bears jerked around by the news headlines. If you ignored the news, the market felt as random as a slot machine.
The frustration of a market like this is that even if you are very disciplined and stick with a money management methodology, you probably ended up with some poorly timed trades. If you set stops to protect yourself, they were probably triggered on Tuesday and you ended up underinvested when the market exploded higher on Thursday.
That is just the nature of the beast at times and there is nothing you can do but shake it off and keep on plugging away. While this action has been tricky to navigate, the good thing is that it has shaken up the market and that should provide some new opportunities -- especially since we should hear some good earnings reports as well.
At this point, I'm still leaning bullish with a number of positions but am staying very flexible and opportunistic. I'm hopeful that as the governmental battle fades, we will return to the stock picking that was so lucrative a few weeks ago.
I suspect the market may seem some nervousness today as the politicians continue to talk at each other but the market sure is acting as if the a deal is a sure thing. Stay vigilant and flexible and we will be in good shape.