The slow-motion rally continues and almost everyone seems to believe we are likely to keep on running into the end of the year. Given the persistence of this trend, it is awfully tough to argue with that sentiment, but the complacency should worry the bulls at least a little.
Even if you are a raging bull, it is still tricky to navigate this market. While the action is lopsided to the upside, it is slow and there are still plenty of stocks that aren't doing much. My impression is that many of the buyers are reluctant and are driven more by fear of being left behind than by conviction that this is a great market.
As I've written so often this year, the key to the market is to respect the price action and to not try to time turning points. There certainly is plenty of risk, but fighting momentum just hasn't worked this year and it isn't working right now.
I'll be digging for some new long ideas this weekend. While I don't expect to find much, it is preferable to trying to fight the strength.
Have a great weekend. I'll see you on Monday.
November 22, 2013 | 10:47 AM EDT
- Some are calling this a 'bubble,' but I'm not seeing it.
Market breadth is negative, but the indices keep chugging along. This indicates that that the computers are hard at work. Action remains very slow, but the old adage about not shorting a dull market is definitely applicable.
What I find most notable about Friday's session is that big-cap momentum is quite mixed. The group enjoyed its first good day in a while Thursday, but there has been very little follow-through today. We have Amazon (AMZN) in the green, but then things like Google (GOOG), Priceline (PCLN), Netflix (NFLX) and Taser (TASR) are trading down. Biotechnology is the leading group -- a good sign for speculative stocks -- but retail, chips, solar energy and homebuilders are in the red.
When I hear people talk about this bubble action, I always wonder if they traded back in the "real" bubble day of 1999 and 2000. This action feels nothing like that. Back then, there was great emotion and energy, and you could feel the excitement. This market, by comparison, seems like it's in a coma. It certainly doesn't appear to be showing the sort of speculative excess that suggests the market is running too hot.
If this were a real bubble, I would not keep complaining about the lack of compelling trades. I'm dinking around with some small-caps like Zhone Technologies (ZHNE), Gray Television (GTN), Horizon Pharma (HZNP) and Extreme Networks (EXTR). But, until we see more life in this market, I'm not expecting to see anything very significant.
Nov. 22, 2013 | 7:51 AM EST
Still Not Thrilled About This Market
- The indices look fine, but stock-picking remains very dificult.
Why is patience so important? Because it makes us pay attention. -- Paulo Coelho
With the major indices hovering near all-time highs, the bulls are feeling good about a strong finish to a very good year. History is on their side, according to Investor's Business Daily. After all, the market has produced a gain 65% of the time between Oct. 31 and the end of the year, with a split between trading flat and down the rest of the time.
The overall tone of trading remains quite strong as the averages easily shrug off any economic worries, like Thursday's weak Philly Fed numbers. Should we see concerns about the Federal Reserve tapering its bond-buying, they only last for an hour or two. There is constant talk about whether the market is a bubble, but that just seems to help build a wall of worry for us to climb.
The most obvious way to deal with this market is the simplistic adage, "Don't fight the trend." Of course, it is never that easy. The most challenging aspect of this market right now is that, despite the impressive strength of the indices, the underlying action is muddled and lacking in good leadership.
Banks have stepped up to lead recently, and that's the main reason the indices are holding up so well. Momentum names had a good bounce Thursday, but they have been struggling lately, and many are well off recent highs. The market is only producing a little over 300 stocks at new highs, while new lows are over 100. That is very sedate for a market that appears so strong on its surface.
My biggest complaint about this market is how difficult it has been to put cash to work lately. Many people scoff at that complaint and say, "The market is going up so just buy anything." But this is not a market in which the tide is lifting all boats. There have been some decent trades in select small-caps, and if you have been quick you can catch some bounces in momentum names, but the "swing" setups that last for days or weeks have been very problematic lately.
Ultimately my overall view of the market is a function of the individual stocks that I'm watching. When they don't correlate with what the indices seem to be indicating, I will defer to the stock picks. Consequently, I've been putting very little cash to work, even though the indices look quite healthy to the casual investor.
I wish I had a better suggestion for how to deal with this, but all you can do is just keep plugging away. Keep on going through the charts, reading the news and looking for new opportunities. Either they will start to appear or the broader market will begin to correct.
I see no reason to rush into short positions, as there is excellent underlying support. Nothing has been more foolish this year than engaging in anticipatory bearishness. If you want to be negative, you have to wait for negative price action to actually occur.
The market looks fine, but I'm not very thrilled about it, as the stock-picking has been very difficult. Sometimes just being aware of that fact is the best thing you can do.
The news flow is slow and early indications are for a flat start.