The upward pressure in this market is so consistent lately that it is becoming downright boring. Stocks were up yet again on no particular news. There is no real worry, and the only weakness is in oil and precious metals. There was solid breadth and, while the gains were not spectacular, there continues to be an amazing amount of positive momentum.
What is most notable about this action is how so many market players seem to be struggling with it. The indexers and buy-and-holders are giddy with excitement and get a kick out of taunting those silly traders who think they are so smart. It simply hasn't paid to do anything but to embrace the market and not let go. If you think you can time the action, you are wrong.
There really isn't any good advice that anyone can offer you other than to stay with the action until there is a good reason not to. This isn't rocket science. The harder you try to find some angle to exploit, the more likely you will get in trouble.
The bulls continue to run and all the folks who think it can't continue for long have been proven wrong. Don't try to anticipate when things might change. Just be ready to react.
Have a good evening. I'll see you tomorrow.
Nov. 10, 2014 | 2:04 PM EST
Don't Fight It
- If you don't want to pay up, don't play the shorting game.
The Nasdaq and Russell 2000 haven't moved much in seven trading sessions, but the market continues not to undergo any significant profit-taking. The bulls aren't seeing much upside progress lately, but the bears are having absolutely no success with the downside.
The bullish spin on this action is that it is healthy consolidation that will set things up for further upside once we digest the recent gains. The bearish spin is that this is stalling action and indicative of a topping process.
While it definitely would be helpful from a trading standpoint if the market weakened and pulled back, there aren't any signs that things are developing that way. As I've pointed out numerous times, this market action has created a huge supply of underinvested bulls with severe performance anxiety. They are extremely fearful of missing out on further upside and are ready to gobble up shares on any weakness. That is why the market is holding up so stubbornly.
It feels like it has been going on for weeks now, but the overriding issue for traders is staying highly invested while respecting that so many stocks are technically extended. Even if you resign yourself to the fact the computers that trade the majority of volume don't care about extended conditions, it still is hard for many traders to give up their discipline and fully embrace momentum.
Discipline is usually key to good trading, but we are in an environment where it has paid off to take a more aggressive posture and embrace extended charts you might now otherwise buy. Alibaba (BABA) is the best illustration of that right now.
The pundits who don't know how to handle this market will continue talking about shorting. I suggest if you don't want to pay up, simply stand aside and not play the shorting game. Just wait for conditions to change and don't try to fight the market simply because you are missing out and don't like the action very much.
Nov. 10, 2014 | 10:42 AM EST
Stick With Momentum
- Because trying to short this market is deadly.
Market players continue to find reasons to buy this market. What is driving the action today is chatter about the "Shanghai-Hong Kong Stock Connect" program, which was announced in a regulatory filing this morning.
For the first time, retail investors can invest directly in mainland Chinese stocks. Investors have been able to buy Hong Kong or "H-shares" for many years but this opens up the Shanghai or "A-shares." There will be many new stocks, as well as arbitrage between the markets. Alibaba (BABA) is one of the beneficiaries of this news, but a wide swath of other China names are plugging along as well.
This isn't new news; it has been in the works for a while but we now have a solid date, and that is enough for buyers to keep the rally going. In markets like this, buyers look for reasons to keep on buying rather than selling.
Breadth is running solid with biotechnology leading again, but there's also strength in chips and homebuilders. We have a little oil bounce helping as well. Overall, the market is in the same position it was most of last week: extended and not making much upside progress. But there is underlying support and plenty of hungry dip buyers to keep it from pulling back. Finding entries is a huge challenge, but trying to short this market is deadly.
My Stock of the Week, Tarena International (TEDU), is a China education play and there is some block action taking place this morning. It needs to move through $14 to create more interest. I'm still holding positions in BABA, Regulus Therapeutics (RGLS), Vasco Data Security International (VDSI), TG Therapeutics (TGTX) and Zeltiq Aesthetics (ZLTQ), which are extended, but until this market cools, stick with momentum as long as you can.
Nov. 10, 2014 | 8:24 AM EST
This Relentless Run-Up
- Even the most ardent bulls would agree that this market needs a rest.
Success is stumbling from failure to failure with no loss of enthusiasm. --Winston S. Churchill
Outside of the long-term buy-and-hold investors, it is almost impossible to find anyone who doesn't think this market could use a rest. For many folks, that thought is self-serving, as they are tired of chasing the market and struggling to put idle cash to work.
The market's moves off the October lows constitutes another in a long line of "V"-shaped bounces -- but this one has been even more stunning than the rest. Before this surge got started, market players had thought that increased dovishness from the Federal Reserve, and the winding down of quantitative easing, would make such moves less likely. What they didn't count on was that the rest of the world would embark on bond-buying in order to shore up their weak economies. The Bank of Japan's stimulus announcement provided extra fuel, and many now hope Europe will be next -- something that is also keeping bids under the market.
There are plenty of reasons for the conditions that lead to these "V"-shaped bounces. But the much more difficult -- and important -- issue is the question of how to deal with them. The irony is that this action creates tremendous frustration, which in turn causes the action to continue. Disciplined market players may not want to chase a market that has gone straight up, but eventually they feel they have no choice -- and that triggers further upside action.
For many market players, the real conundrum lies in figuring out whether they are being stubborn when they refuse to chase stocks that have gone parabolic, or if they are being prudent when they don't buy these technically extended shares. It is easy to be glib and simply say you should stick with the trend and the momentum -- even the most aggressive bulls must have limits on how much they can trust a market to keep on running after a huge move.
I find that the best way to deal with this sort of environment is to focus more on individual stocks, rather than on the indices. If you pay attention primarily to the broader picture, it is easy to argue that the market is grossly extended and that, therefore, you shouldn't buy anything. If you look at individual stocks instead, you'll find greater flexibility. While many of these names are not in good buying spots, some of them are technically healthy and offer a better risk-reward scenario than the indices do.
Typically what happens at this juncture is the bears keep trying to call a top in the indices, and miss out on the positive action in individual names. The fact that the market is extended simply isn't sufficient justification for on overly bearish approach.
One of the big struggles right now is that even folks who are bullish are wishing and hoping for pullbacks. It just isn't possible to make up for past performance or to put cash to work in this environment. The fact that it is difficult is why the market is so potentially lucrative. Just stay at it, and eventually the payoff will come.