Economist Paul Samuelson once said, "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."
If that is the case then this must be a great market for investing, because it seldom is much slower than this. The indices hardly budged and if you were looking for trading action, it was a tough slog. The action wasn't bad, and you could hear some bulls chanting, "Don't short a dull market" but other than a little late spike, the screens were practically comatose.
The positive spin, and the more logical view, is that this is healthy consolidation after a big run. This sort of action will eventually give us a good basis of support, but far too many stocks are technically extended. It would be faster, easier and much more interesting if we had some downside movement, but this market absolutely refuses to weaken. That may make the bulls fat and sassy, but the market beast does not like being taken for granted.
It's easy to be overly negative when things are this slow, so resist the urge until there's something substantive in the price action to worry about.
Have a good evening. I'll see you tomorrow.
Nov. 11, 2014 | 2:08 PM EST
Wait Out This Slow Action
- Be ready to seize opportunities as they emerge.
You might think that a market that is charging higher and making new highs would be quite exciting. If you thought that today, you would be wrong.
Part of the issue is that volume is down because the bond markets are closed for Veteran's Day. But the bigger issue is that the market has been running on fumes. So market players are standing aside and waiting for something to develop. These folks aren't bullish or bearish. They are opportunistic and will move in either direction as soon as a little energy develops.
Breadth has slipped slightly as the day progresses but there still are no signs of any rush to exit the market. As I have often noted, strong markets tend to stick to the upside because of the large supply of dip-buyers that have been created. It takes more than very minor pullbacks to scare them away and we haven't seen any real weakness since the market bottomed back on Oct. 15.
If I were looking for attention, I would make some dramatic market calls since it is so slow. But that would do nothing to help you make money. You simply have to wait out this slow action. Opportunities will develop and we will seize them as they emerge.
Nov. 11, 2014 | 10:56 AM EDT
Into the Green
- The market isn't much to the upside, but isn't rolling over, either.
The major indices have moved into the green after a sloppy start, but there is slightly more selling pressure this morning than what we have seen recently. Breadth is running 2,400 gainers to 2,850 decliners and momentum names are about 50-50. Biotechnology has interest but oil and chips are sluggish. While the market isn't going much to the upside, it isn't rolling over, either.
As I discussed in my opening post, it is very easy to keep looking for a top, especially since finding new long buys is becoming so difficult. There isn't much that isn't extended, but it doesn't follow logically that you should be selling instead.
I'm not doing a lot. I'm still holding positions in Alibaba (BABA), Sierra Wireless (SWIR), Regulus Therapeutics (RGLS), Vasco Data Security International (VDSI), TG Therapeutics (TGTX) and Zeltiq Aesthetics (ZLTQ), but I've made partial sells in each and I would be a buyer again as charts develop. One position I added to today was Pernix Therapeutics (PTX).
If the small-cap indices take out the day's lows, I'll consider an inverse index ETF for a trade, but the underlying support is rock solid and I'm probably just thinking about that trade out of boredom.
Nov. 11, 2014 | 8:01 AM EST
A Fool's Errand
- I reiterate: Do not occupy yourself with calling a market top.
The right thing at the wrong time is the wrong thing. --Joshua Harris
When a market is going straight up, the natural inclination of many traders is to try calling a top. Active market players have strong desire to be the market-timing genius that nails the precise moment that a trend has come to an end. The attempt is understandable -- but is it smart?
In theory, you should be able to make a ton of money if you can do this with some precision, but the reality is that this is usually more of an exercise in ego than anything else -- and it doesn't tend to produce a big profit, either. What happens when people engage in this game is that they rack up a series of losses as their trades are stopped out and they try again. The tendency is to justify the behavior by saying, "I was just a little early, but this time I'm going to nail it." If you try long enough, you will eventually be right, but what we never hear about is how much money has been lost in the process. Would you have better off simply staying with the trend and only selling once you saw some weakness?
In addition to the cost of losses on premature short positions, there is another hefty price: the profit you have lost by failing to stick with the trends. It is hard enough to keep pace with the market trend when you are long. It is just plain impossible when you are obsessed with trying to call a market turn. The combination of being on the wrong side of the market, along with the opportunity cost of premature shorts, should give pause to anyone who is trying to time market turns.
If you don't try to time, how do you protect yourself when the inevitable top does occur? First and foremost, you react quickly. When cracks appear, you take defensive steps. You will likely still suffer some losses -- but in many, if not most, cases, the profit you book by staying with the trend will provide you with a decent cushion. Typically you will make some good money in the late stages of a market run, and that will more offset the hits you take when things shift. The bears will always be early, and will have to make up some good-sized losses before they can enjoy the profit seen from calling a top.
One of the problems with the anticipatory method of dealing with the market is that you will make mistakes when you react quickly to subtle signs of weakness. You can never be sure that weakness is a signal of a significant turn. This market has been particularly brutal in shaking out those who react quickly to minor signs of weakness.
The current market certainly looks ripe for at least a pause, but should we be focused on trying to call a top. The better approach is to let your individual positions dictate your market exposure. As you lock in gains or are stopped out, your cash position will grow -- and if you are unable to find places to redeploy it, you will automatically take a more cautious stance. No explicit timing attempt will be needed. Simply let your stocks be your guide.
We are seeing more broad-market strength in the early going. An intraday turn down would cause some folks to hope that we may finally see more aggressive selling, but don't underestimate the underlying support in this market.