It was another fine day for the bulls as bad news out of China yesterday was offset by good news out of China today. It was a low-volume bounce, but since when does that matter? Good earnings reports helped the bullish cause as well, with strong reports from Amazon (AMZN) and Microsoft (MSFT) this evening.
The trend to the upside remains quite strong but I was a heavy net seller today as the action in a number of individual stocks struck me as weak. As I've often pointed out, anticipatory bearishness like that hasn't worked well, but I need to reset a bit mentally after a high level of activity lately.
It's easy to be pessimistic about this market except for one very important thing: the price action. At the end of the day, that is all that matters. All the fundamental arguments and economic insights are meaningless if stocks ignore them.
In my book, it's very simple: Stick with the price action until it stops working. Right now, it is working
Have a good evening. I'll see you tomorrow.
Oct. 24, 2013 | 2:34 PM EDT
Buyers Stay Upbeat
- They don't seem to have a worry in the world.
What continues to be most remarkable about this market is how quickly the buyers regain their upbeat attitude. We have a day or two of weakness and lots of predictions that a top is forming and before you know it, the buyers are back at it and don't seem to have a worry in the world.
Today's bounce is coming on light volume and average breadth, but the desire to put money to work is clearly out there. Maybe that is a sign of the complacency that the bears like to focus on but it sure is helping give this market support.
One thing I'm a bit concerned about is an attack on NQ Mobile (NQ) by research firm Muddy Waters. I've traded this stock quite a bit and it has been a momentum favorite, but Muddy Waters is saying it's a fraud and it has been cut in half.
Muddy Waters helped to kill the speculative fervor in China stocks a few years ago when it correctly targeted a number of frauds. China stocks have been very hot the last month or so and this may kill the action. I've dumped most of my China positions and I'll avoid them other than for very short-term trades.
Even though the overall action has been decent, I've been a heavy net seller today and I don't anticipate any big buying. There is nothing wrong with the action in the indices, but action in individual stocks is losing a little luster.
Oct. 24, 2013 | 10:38 AM EDT
Playing This Routine Bounce
- I've mostly been selling this morning.
The bulls are working hard to build on this bounce but aren't exhibiting too much energy so far. It looks like a routine bounce after a weak day, but these weak bounces slowly have often gained momentum and suck in buyers.
Breadth is only running 2,700 gainers to about 2,200 decliners and there's leadership in precious metals, biotech and homebuilders. Oil and banks are laggards. Solar energy continues to be the best-performing group in the market and there's recovery in the high-beta big-caps with Tesla (TSLA), LinkedIn (LNKD) and SolarCity (SCTY) seeing interest.
One buy I made this morning is Tekmira Pharmaceuticals (TKMR), which is a small biotechnology stock that Dan Rosenblum of Shark Biotech is positive on. The chart is set up well with good support in the $8 area. I'd like to see better volume but the pattern looks low risk to me.
The market is finding a little more support as I write and I'll be looking for more entries, but I'm staying selective.
Oct. 24, 2013 | 8:38 AM EDT
Those Crestfallen Bears
- Once again, yesterday's bad news has already been forgotten.
"There is nothing that teaches you more than regrouping after failure and moving on. Yet most people are stricken with fear. They fear failure so much that they fail." -- Charles Bukowski
By most measures, the market had become a bit frothy after it had blasted higher following a political deal in Washington. Things finally cooled off a bit the last couple days as some of the high-momentum names were hit with increased volatility and some profit-taking. The bears even had some poor data out of China to help their cause Wednesday.
Of course, the minute we see any weakness, the bears are quick to proclaim that the market has topped and that the indices are heading straight down. It is understandable that these folks are excitable, given how poorly they have done this year, but an aggressive bearish posture just hasn't been a road to profit. Those short positions may finally work a little, but if you don't cover them very quickly, you will mostly likely be squeezed once again.
Despite the weakness Wednesday, the market remains quite extended and it could use more time to consolidate -- yet the buyers are active, as some good manufacturing news came out of China last night. Yesterday's bad-loan write-offs, the excuse for Wednesday's selling, are now being forgotten as other economic activity picks up.
If you are bullish like I am, one of the most frustrating things about this market is that the corrections are so short and so shallow that it is difficult to use them as opportunities to reload. This market has made it challenging for those who like to move in and out as the action ebbs and flows, and this is one of the big reasons that active hedge-fund managers are underperforming to such a degree. More often than not, the buy-and-hold types -- those who just stick with their long positions -- are those who are doing well.
Probably the best advice I have given this year, then, is to ignore the market timers and to stick with the trend and individual stock-picking as long as you can. Market timing has been an absolute disaster this year, as the bears just can't seem to understand what is driving this market. They keep thinking that the fundamental concerns they are dwelling on will matter -- but, instead, market players are staying focused on buying dips and putting cash to work.
As we go into the end of the year, I believe the biggest driving force in this market will be the hunt for relative performance by lagging fund managers. This comes as a thirst for dip-buying manifests itself, creating very strong underlying support. That doesn't mean we won't see some pullbacks and dips, especially if we see some negative headlines about the Federal Reserve tapering stimulus. But, for the bears who think this market is going to fall apart into the end of the year, disappointment likely awaits.
The market is gapping up a bit this morning, and we'll see if that action sucks in some buyers fearful of once again missing the dip-buying opportunity. If you took some hits Wednesday, you weren't alone. We'll make it up soon enough.