Concerns that the market is extended and badly in need of a rest proved unfounded again. It wasn't a big day for the indices, but the underlying action improved nicely with small-caps showing good relative strength and momentum stocks producing a sea of green. Overall breadth was solid, as momentum names really stood out.
Another good sign was that Alibaba (BABA) closed well and looks to be gaining momentum again. Idle cash is still looking for a home and that is reflected in BABA.
The important thing is not to over-think the market action. Yes, it's easy to find flaws if you want to, but it's been far more profitable to look for reasons to stay long. One of the better reasons to stick with the bulls is that seasonality around the holiday favors the upside. We had a nice taste of holiday trading today.
There really is nothing very profound to say about this market. It continues to trend upward and the bears are toothless. You don't need to know much else. You can spend plenty of time formulating big macro arguments but they aren't making you a dime in this environment. Good stocks are working, so stick with them.
Have a good evening. I'll see you tomorrow.
Nov 24, 2014 | 2:07 PM EST
A Blast From the Past
- We are seeing some signs of the old type of trading today.
One of the recent tendencies of the market has been that it trades in very tight intraday ranges. After the gap at the open there are periods where it is dead flat for hours. It usually picks up some as the close approaches, but the vast majority of the move comes at the open.
In the "old" days, by which I mean prior to the Great Recession of 2008-2009, many of my best days would come when the indices were dead flat. What would happen is that the "hot money" traders would gravitate toward a smaller group of stocks that were active. If you were quick to spot them (which was one of my better skills) you could jump in and ride them as the broader market discovered them and joined the party. It really didn't much matter what the indices were doing as long as there were these "pockets of momentum" to trade.
Things changed after 2009, mainly because the computer programs that are the most dominant force in the market focus more on stocks that they can jerk around quickly. They don't need sustained momentum to make money. They just need sufficient liquidity and some minor movement.
As a result, the quality of the trading in the "pockets of momentum" has changed. Today we are seeing some signs of the old type of trading where the indices do little, but certain individual stocks do well. It is probably partially a function of "holiday trading" and it is refreshing to see.
Lately, the market has not been able to close well and it is showing signs of pausing once again. Stay with the momentum but keep those stops in place.
Nov. 24, 2014 | 11:12 AM EST
Getting in the Holiday Spirit
- The market is acting well, but I'm struggling to put cash to work.
We are kicking off the week with some holiday spirit. Breadth is solid at 2-to-1 positive and momentum names are about 3-to-1 positive. Biotechnology is leading again and we have good action in retail and chips while oil lags again. Interestingly, small-caps are showing relative strength. It has been a seesaw lately with that group looking poor one day and bouncing back the next.
While there continues to be concern about how extended the indices are, many market players are happy to suppress those worries and stick with stock-picking. It sure hasn't been a very good strategy to focus on macro concerns, so why not buy a few things and stick with the flow as long as possible?
It is quite a challenge to find new entries, but a few are working. My stock of the week, Tower Semiconductor (TSEM), may look a bit extended but it received a $20 price target from an analyst at Craig-Hallum and is blasting higher on excellent volume.
One of the best technical setups I saw this weekend was Cyber-Ark Software (CYBR), which is moving out of a pennant pattern to a new all-time high.
I continue to hold a position in Alibaba (BABA) but it hasn't been doing much and I see no reason to do anything with it right now.
Some other names I'm holding include Amicus Therapeutics (FOLD), BioTelemetry (BEAT), Vasco Data Security International (VDSI), Fiat (FCAU), TriQuint Semiconductor (TQNT) and Zeltiq Aesthetics (ZLTQ).
While the market is acting well, I'm still struggling to put cash to work. That is not going to change until there's some downside movement.
Nov. 24, 2014 | 7:20 AM EST
Make Sure You Stay Disciplined
- Thanksgiving week brings some speculative opportunities.
I love holiday trading!
It is Thanksgiving week and that typically means a positive bias and some interesting speculative trading. Tendencies like this aren't a certainty, but traders expect it and help to make this sort of action self-fulfilling.
Unfortunately the technical conditions for a strong week aren't all that great. While the indices are bouncing around near their highs, momentum has been slowing and we've had a lot of choppy action. The indices look fine, but the action in small caps and momentum stocks isn't what you hope to see in a market that is hitting new highs.
The buy-and-hold bulls will scoff at any suggestion that that market isn't in fine shape, and they do have a point. The bears have been predicting disaster for weeks now, but the central bankers will not relent and help keep a strong bid under the market. After the gap up on Friday, the action the rest of the day was rather dreary. We drifted lower and closed near the lows, but it was still a positive day and we had a surge in new highs to over 350.
It is hard not to be at least a little concerned about the potential for some topping action. We have had a huge run with almost no consolidation for over a month. While the uptrend is certainty strong even the most bullish bulls wouldn't mind some backing-and-filling to improve the charts. It is harder and harder to find good set-ups at this point but most bulls are just trying to stay with the trend and not question it too much.
The nice thing about holiday trading is that it shifts the focus to individual stock picking. Too many folks are wasting too much time right now trying to time the indices. The desire to nail the top is understandable, but it is a costly endeavor, and many would be better off if they stopped trying to figure out when this ridiculous uptrend will finally end.
The key this week is to watch for pockets of momentum. There aren't any great themes right now, but biotechnology is still active and we have had some strong action in retail due to lower oil prices. In addition, small-cap stocks are lagging, so the pockets of action may be quite limited. In momentum-land we have a few names like Apple (AAPL) and PetSmart (PETM) that are active, but even Alibaba (BABA) is struggling to get back in gear.
The last few years there has not been quite as much speculative trading around the Thanksgiving holiday, so you do have to dig deeper to find out. Just make sure you stay disciplined and keep a tight leash on trades that don't go as anticipated.
We have some positive action in the early going on positive German sentiment and some good action in Asia, but these gap-up opens aren't producing any traction lately.