The bulls have been optimistic that the slow action of the last couple weeks was healthy consolidation that would set us up for a further move higher. That view turned out to be correct, as the buyers stepped up and drove the indices to new all-time highs.
Volume wasn't that heavy and the number of new highs was only around 300, which is pretty tame for a market at this level. However, the bears, who were hoping that the market was stalling, were squeezed and the underinvested bulls had little choice but to jump back in once again. Performance anxiety continues to be a significant market driver.
Although the market has not had any significant weakness for over a month it has not been an easy market for many bulls to buy aggressively. We are not seeing the sort of chart patterns that are supportive of big buying and there is still a fair amount of choppiness which is masked by the one-way action in the indices.
As has been the case for quite some time, the new highs don't generate much excitement. It gives the business media something to use for headlines, but market players take it in stride and many of them are irritated that there aren't better entry points.
The only thing that is significant about the action today is that the uptrend continues and there still is no reason to be overly negative. It doesn't make for much drama but it should be very clear that it is better to look for positives rather than negatives.
Have a good evening. I'll see you tomorrow.
Nov. 18, 2014 | 1:09 PM EST
You're Better off Finding Stock Picks
- Than finding reasons this market can't continue to climb.
The old saying about not shorting a dull market has kicked in and we have some pretty strong action now. Breadth is robust, with about 3,750 gainers to just 1,850 decliners. Biotechnology is leading the charge once again, with strength in solar energy, chips and drugs helping out. Retail and steel are the laggards. The momentum screens are running nearly 80% green and small-caps, while lagging a bit, are looking pretty good.
This action is a very good example of why it has not paid to be anticipatorily bearish. The folks who keep trying to call tops are constantly caught in action just like this. They have some good arguments for their pessimism, but it has been a major mistake to take a bearish view before there is some actual negative price action.
Most of the stocks I mentioned in my preceding post are doing well and I'll be looking to add some exposure into the close, especially if we finish near the highs. The bulls have been resting for a week now and are ready to resume the momentum. They have also lulled some bears into thinking that the recent stalling action was a warning sign and now they will provide some short-squeeze fuel.
The natural inclination of many folks is to keep on trying to find reasons why this market cannot continue upward. You are better off spending your energy looking for stock picks like Zeltiq Aesthetics (ZLTQ) rather than try to guess when the indices might shift.
November 18, 2014 | 10:34 AM ET
New Day, Same Old Market
- This is what happens when computers drive the action.
Yesterday, small-cap stocks lagged; today, they are outperforming. There is no major change in market conditions. That is what happens when computer programs drive the action. Once there is some movement, it is accelerated by computer programs, and then aggressive traders jump in. It often makes for streaky trading and gives the market an artificial feel that frustrates those who are still looking for emotions and logic to push the movement.
Rather than try to figure out the mystery of the machines, the best course of action is to catch some trades. You have to be quick, but there is action for those looking for opportunities.
My Stock of the Week, Bitauto (BITA), has come to life after a pause Monday. It is looking for the all-time highs it hit in August. It's not an overly expensive stock and it is attracting momentum chasers.
I stated a new position this morning in Wi-Fi play Ruckus Wireless (RKUS), which needs to recapture its 50-day simple moving average around $13 but has decent volume.
Barracuda Networks (CUDA) is gaining some momentum and I'm sticking with that. TriQuint Semiconductor (TQNT) is another I'm watching closely as it forms a very solid base. A new high should triggers some buyers. Zeltiq Aesthetics (ZLTQ) is also forming a very solid base. This is one of my favorites, but it needs volume to trigger it.
Alibaba (BABA) is pulling back and I'm looking to nibble at that slowly. The problem is that there aren't any obvious support levels since it went up so quickly, so $110 is probably the most logical level of support.
At the time of publication, Rev Shark was long BITA, RKUS, CUDA, TQNT, ZLTQ and BABA, although positions may change at any time.
Nov. 18, 2014 | 7:15 AM EST
Watch, Wait and Stay Positive
- Too often, the market has refused to catch its breath.
Patience is power. Patience is not an absence of action; rather it is "timing."
--Fulton J. Sheen
For a week now, the market has been at a standstill. We barely budged on surprise news of a recession in Japan yesterday, and we have little movement this morning, now that Prime Minister Abe has delayed sales tax hikes and is calling for new elections. Hope that a QE announcement will be forthcoming from Europe is giving the indices support, but market players are mostly just biding their time and waiting for something interesting to occur.
When the action is dull we often overlook how important, and powerful, "patiently waiting" is to the trading and investing process. We have to wait while the right conditions for good trades develop, and then we need to be patient while we let our trades develop.
Traders generally have a bias toward action and they can be their own worst enemies when things are slow and there isn't much of an edge. Rather than wait and see how things develop, we are inclined to start predicting major market moves. Market pundits are constantly doing that because they need attention, but individual traders and investors often do it because they want the feeling of certainty and don't want to sit and wait for something interesting to happen.
At this point there really is no edge. The bulls will tell us that these market conditions favor further upside. The argument is that we are consolidating gains and working off the giant V-shaped move from the October low. This basing action will provide the foundation for positive seasonality into the end of the year.
The bears will argue that the market is stalling out and that the slight deterioration in small caps and momentum names is signalling that we are going to undergo another correction. We have had four corrections this year and each has begun in stealth-like manner, with the major indices doing little while the underlying action began to weaken. We did have weaker breadth yesterday, but so far the weakness under the surface is minimal.
So which way is this market going to break? I don't know, and I'm not going to spend much time trying to predict. What I am going to do is be mentally prepared to deal with things as conditions change. I often think of it as stalking. I want to watch very closely and then move quickly when the time is right. It doesn't matter if we have a positive or negative reaction. I will trade in either direction as it becomes clear as to which way the market is going.
Too often over the last few years the market has refused to pause and catch its breath. Things are seldom allowed to rest and reset. That doesn't mean that this flat action is going to launch higher, but it does give us the opportunity to be ready to profit as we emerge from the slumber.
At this point the key to success is to watch, wait and cultivate a positive attitude.