The bulls will say that the flat action today was a healthy day of rest after a good run. The market needs to consolidate a bit before it embarks on the next let up.
The bears will argue that the failure of the indices to make any progress was stalling action and is an indication that the market is about ready to roll over. Of course, the bears are desperate at this point, and they will spin just about everything as negative at this point.
What is most remarkable about this market is how little movement we have seen. The S&P 500 has not moved more than 0.6% in 17 straight sessions. According to BTIG, that is the longest such stretch since January of 1995. In other words, it hasn't been this flat in almost 20 years.
When there is an ongoing pattern in the market, the natural inclination is to keep looking for it to eventually shift. Many market players are doing that and most of them seem to think that when the pattern shifts, it will be to the downside.
I have no idea what is going to happen, but I do know the smart plan of action has been to just assume that the pattern will continue. There are a few things under the surface that worry me but there are trades that are working, so that is my main focus.
Have a good evening. I'll see you tomorrow.
Nov. 25, 2014 | 13:56 PM EST
Looking to Put More Cash to Work
- I'm going to keep on buying charts I like.
While the market is looking a little tired, there continues to be underlying support. Some bears are looking at an intraday reversal in Apple (AAPL) as being a signal of a short-term top, but that appears to be a triumph of hope over reason.
There are plenty of stocks that could use a rest but the indices reversed up off intraday lows and are now looking at the morning highs. If the market closes weak that may change things a little, but the big driving force continues to be underinvested bulls who are struggling to catch up and that isn't shifting.
I'm in that group that keeps looking for ways to put more money to work. Since my trading style is to take partial profits into strength I always have some cash to deploy. For example, I made some partial sales of my stock of the week, Tower Semiconductor (TSEM), and now I have to find a way to put that back to work. I bought some Century Aluminum (CENX) and Pernix Therapeutics (PTX), but I'm still holding substantial cash.
Sooner or later this trend will end but I'm just going to keep on buying charts I like and let the action in those stocks determine if I sell or not. I'm not smart enough to predict what the overall market is going to do so I'll just react when conditions change. Sometimes it helps when you don't try to be too clever.
Nov. 25, 2014 | 10:51 AM EST
Tightening Up Stops
- Some selling is hitting on very weak sentiment.
The opening gap is attracting some mild profit taking but the desire to put cash to work is keeping a strong bid under the market. Breadth is running about 3-to-2 positive and we are seeing 240 new highs, which is a bit on the low side.
Momentum names remain active and small caps are showing some relative strength once again. There is some minor selling in biotechnology and no group really standing out on the upside.
There is a good amount of speculative action in "junk" stocks such as Nuance Communications (NUAN), SinoCoking Coal and Coke Chemical Industries (SCOK) and Kandi Technolgies Group (KNDI). That is what typically happens during Thanksgiving week when traders are beating the bushes looking for opportunities.
I'm just trying to stick with momentum and put some money to work when I can. One good-looking chart on my radar is Century Aluminum (CENX), which is coming out of a good looking base. I would like to see better volume but that looks like a triple-top break that could attract some attention.
My other top plays right now are Alibaba (BABA), which I think will stay active as folks try to park cash somewhere relatively safe and Vasco Data Security (VDSI), which is seeing good momentum as a network security play. Pernix Therapeutics (PTX) is also setting up nicely and I'm adding to that.
Some selling is hitting on very weak sentiment as I write this so I'm tightening up stops. The inclination of this market has been to quickly shrug off this sort of news but a bit of pullback certainly isn't a bad thing at this juncture.
Nov. 25, 2014 | 07:10 AM EST
Don't Overthink This Market
- The bears keep getting it wrong on their calls for a top.
"We are dying from overthinking. We are slowly killing ourselves by thinking about everything".
For a couple of weeks now, the state of the market can be summed up in the same way. We are too extended and lacking in momentum to be aggressive buyers, but we are tending and holding up too well to be sellers.
In essence what we have is "wall of worry" action. The major worry is underperformance. The longer the market continues this slow grind higher, the greater the anxiety over missing out and the stronger the underlying support.
This has been a very common dynamic in this market over the past five years, and it is why always those moves to all-time highs are characterized as being "hated." Many bulls really do not want to buy at this point, but they feel they have no choice. They hold their noses and ignore extended technical conditions and the various bearish arguments.
This sort of action is a good example of why you don't fight the crowd. The contrarian bears believe that the masses are foolish and ignoring reality but as long as they still have buying power, it is suicide to fight them. Contrarian thinking works when the buyers are so positive that they have little buying power left. The bears have made the huge mistake of thinking that, because the market is at the highs, there is little buying power in reserve. There is still plenty of buying power out there, and its slow leakage into the market is what gives us this one-way action.
Ironically, the action yesterday was some of the best we've had recently, even though the indices are in the stratosphere. We saw outperformance by small caps, strong action in momentum stocks and a number of pockets of good trading action. It was picture-perfect trading action and it was probably due in part to the fact that it is a holiday week.
The big question now is the same we have had for weeks now. Does this endless grind higher continue? The answer is that it is stupid to assume otherwise until there actually is a change in the price action.
This market is an extremely good example of why I preach a reactive approach to the market, rather than an anticipatory one. The only way you can call a top with great precision is to be anticipatory, which is why so many do it; but it is also the easiest way to rack up an endless stream of losses, as the momentum continues higher than seems reasonable.
If you use a reactive approach to the market and only shift your position once there is some actual weakness, you will suffer some losses at the turn but the gains you make while sticking with the trend will usually more than make up for it.
The bears keep predicting a top, but the upward trend continues. Don't overthink it.