The deal is done and the economy has been saved, but the bears are still waiting for their "sell the news" reaction. We still have to go through the formal voting, but the market doesn't look like it has any inclination to sell off.
Once again, we saw extremely strong momentum in big-cap names like SolarCity (SCTY), Facebook (FB) and Google (GOOG), as well as wild speculative action in a slew of China and low-priced stocks. The action in many individual stocks looks like a roaring bull market.
You have to wonder if the market would be trading this well if we didn't have the debt crisis. So many traders have tried to get in front of the inevitable deal that the market has gone near parabolic. All the folks who were left behind are trying to play catch-up and that is preventing the "sell the news" reaction that the bears were sure was coming.
We'll likely have a bout of profit-taking, but it is going to be tough to keep this market down when so many have done so well buying the dips. It is possible a top forms, but that process could take a while and I see no reason to dwell on it.
Earnings season is an important driver and we have a few announcements already as IBM (IBM) disappointed but banks look solid. Hopefully, the political drama will fade and we can go back to focusing on stock-picking.
Have a good evening. I'll see you tomorrow.
Oct. 16, 2013 | 1:10 PM EDT
Beyond the Headlines
- The bears keep missing one critical market driver.
To no one's surprise, the Senate has a deal in place to end the debt standoff and there doesn't seem to be any concern that it won't make it through the House. The market has been anticipating this news but still acts as if this is a great surprise. You have to wonder if this frenzy will help to produce at least a brief "sell the news" effort.
I wouldn't be surprised to see selling soon, but I don't see any reason that it will be a major top. We know we are going to start hearing the phrase "kick the can down the road" when the pundits talk about this deal, but it is a mistake to think politics alone is driving this market.
What many of the bears are missing is that the appetite for stocks has little to do with the headlines. Market players are fearful of being left out and the underperformance by money managers this year is just getting worse when they refuse to respect this strength.
I've been taking some partial profits in big movers like SolarCity (SCTY) and Infoblox (BLOX) but when momentum is this strong, it doesn't die easily. If the market dips soon, I expect to see buyers jump in quickly.
Oct. 16, 2013 | 10:33 AM EDT
Ride the Momentum Train
- The action just keeps on rolling.
There's great optimism that the politicians are very close to a deal. Even though markets seem to have already priced this in, there is another frenzy of buying today. Breadth is extremely strong, around 4:1 positive, and there is plenty of chasing of big-cap momentum names like SolarCity (SCTY), Tesla (TSLA), Facebook (FB) and Infoblox (BLOX). We also continue to have wild trading in small-cap China names, and even a very hot initial offering, Veeva Systems (VEEV).
The action is definitely a bit overheated, which makes the chances of a "sell the news" reaction higher. I'm still riding longs and I have no interest in timing, but I'm going to keep tight stops on positions.
As I've said, I don't believe a "sell the news" reaction will last long, especially as more underinvested bulls are left behind. They will be anxious to jump on any weakness.
The easiest mistake in this market is to try timing turns based on big-picture considerations. It has been far more profitable to stick with individual stocks that are trading well. When they cool off, it will be time to be more defensive but, for now, riding the momentum train works best.
Oct. 16, 2013 | 7:57 AM EDT
Another Day at the Slots
- The political drama has made the market wholly unpredictable.
"In politics, stupidity is not a handicap." -- Napoleon Bonaparte
Early indications are strong as the market continues to have high hopes that a deal will soon be made in Washington. The irony is that the market has probably rallied more in anticipation of an agreement than it would have done if a deal had actually been made. As long as we keep hearing that a deal is about to be finalized, the buyers will continue jumping in, hoping to catch the spike that will result when the final agreement is announced.
Unfortunately, the focus on the headlines turns the market into the equivalent of a slot machine. Stocks are dancing around to the news and fundamentals, and charts don't matter much. Even earnings reports have taken a back seat to the political debate.
The good news is that buyers remain quite confident. There is strong underlying support, as well as a high level of speculative interest in small-caps. Buyers seem ready to buy every dip, and why shouldn't they? It has worked so well for so long.
The bears' position is that the market is being wrongly driven up in anticipation of a deal and that, therefore, the market will sell off once the deal is made. This is especially so since nothing is really being resolved. The hard issues are simply being pushed a few months down the road, and we'll have to go through this drama again in the near future.
While a "sell-the-news" reaction would be quite logical in view of the current action, the bears are overlooking how much buying interest there is. I believe many buyers would welcome such a move, as it would allow them to buy the pullback. The biggest problem for most bulls is in finding good entry points, since the market never seems to stay down for long.
I always stay reactive to the market, but at this point I'm not overly concerned about a selloff if a deal is made. If things remain delayed and no deal is made before the weekend, that may cause some nervousness and result in selling pressure, but the headlines seem to indicate progress on an agreement.
If you are looking for some action, the trading in many small-cap Chinese names has been excellent lately. These are not stocks you want to hold for the long term, but they are making some very big moves, and that is attracting the hot money -- which helps to keep them moving. The bears will tell us that this sort of speculation is a sign of a market top, but until the price action shifts, I'm not at all worried about that.
We should have some news soon about a Senate deal, and that will set the tone. Be ready for the headline hoopla to continue.