The action today put the cap on what was a very slow week. The Nasdaq managed a 1% gain over the past five days, but the other major indices barely stayed in positive territory. It made for some boring trading, but overall it was exactly the sort of action we needed following the buying frenzy off the October lows.
Of course the bears were quick to tell us that this pause is the beginning of the end, and the underinvested bulls that want to buy dips were hoping for great weakness. Overall, however, the market held up quite well and there wasn't anything very worrisome about the action.
I've often discussed how market tops are a process rather than a single point. But there is nothing about this action to make me think it is anything more than some routine consolidation. Yes the indices are still extended and it sure would be nice if charts could reset a bit more, but this looks more like a pause that refreshes rather than stalling out.
A number of market observers think that maybe we are seeing an acceleration of the typical bullish action that occurs at the end of the year. That might be, but until there is some hard proof it is just wishful thinking -- mostly by folks who are struggling to keep pace with this market.
Lots of stocks are extended, but there still are some interesting opportunities.
Enjoy the weekend and start thinking about that holiday shopping. I'll see you on Monday.
Nov. 14, 2014 | 10:34 AM EST
Picking Up Where We Left Off
- It isn't aggressive selling, but the hits can add up.
The market action is picking up where it left off yesterday. Small-caps are underperforming, momentum names are doing little and breadth is running negative, particularly on the Nasdaq. The badly abused oil names have a little bounce, but biotechnology is seeing selling and there are no major bullish themes.
It isn't aggressive selling, but the hits, especially in some smaller stocks, can add up. There's leadership in Amazon (AMZN), Bitauto (BITA) and Baidu (BIDU), but it is very random.
The bullish spin is that we have needed this sort of action to consolidate gains and set up conditions for a year-end run. This action doesn't even qualify as "corrective" but at least it will help raise skepticism. It has been so hard to find good chart setups after the parabolic move from the October lows that it is very welcome action.
I've already raised quite a bit of cash and I'm focused on trying to put it back to work. I believe Alibaba (BABA) will be a leader into the end of the year and I'm looking to build up a position on weakness. There is no obvious support level in that chart, so I'm just looking at small nibbles.
There just isn't much going on right now. It isn't weak enough to be aggressively bearish but there isn't much strength. That's not all bad considering how far we've come in the past month.
Nov. 14, 2014 | 8:16 AM EST
Tame the Market Beast Some Other Way
- Don't attempt to time it.
I think there is a world market for maybe five computers. --Thomas Watson, President of IBM (IBM) in 1943
Market players are far too obsessed with trying to predict market tops. That said, this is an understandable inclination that needs to be studied and understood. Obviously the goal is to time market turns precisely in order to generate a profit as you move in and out of positions at the exact right time. In the world of stock-market punditry, the folks who call major turning points can bask in the glory for many years, even when there is no indication that such predictions are nothing more than coincidence.
The desire to call market turns is fed by the belief that there are experts who do so with great accuracy. While there are many good market timers who can help us navigate the market, no one has been able to call market direction with high precision for a long period of time. This is a very important fact to understand and appreciate. There simply is no one in the world who has been able to pinpoint market turns consistently over the course of many years.
Once you fully appreciate how difficult this is to do, you can work on finding other ways to contend with the Market Beast. If you can't rely on accurate prediction, that means you need to develop ways to determine when market conditions are shifting.
This a different form of timing, because it is based on reacting to facts rather than trying to anticipate events. A reactive trader is making moves based on hard evidence rather than on predictions. This helps to remove emotions such as hope and fear.
So many of the folks who are trying to predict a market turn are driven not be careful evaluation, but by emotion and frustration. Personally I would very much like to see some market weakness, as I believe that it will help to create more and better trading opportunities. I have to suppress that desire when looking at the market, though, and I need to do my best to stay objective in evaluating what is really going on. I can give into my hopes and spin a bearish scenario when I use an anticipatory approach, but staying focused on what is right in front of me keeps me in tune with reality.
Someone will end up predicting a market top with great accuracy and will garner some attention for it. But, for us mortals who don't, we are far better off just listening to the action and reacting as it develops.
Yesterday we has some small warnings as small-cap stocks and momentum names weakened. It was covered up well by the strength in the Dow Jones Industrial Average and S&P 500, but it is something that now needs to be monitored closely. All of the market corrections in 2014 have started this way, and if you haven't reacted quickly to them it has been costly.
We have a flat start in the early going as worries about Europe and the slide in crude oil offset positive sentiment.