Morning Market Thoughts

by DAN Good morning. We’re looking at a slightly lower open (again). There’s no telling whether the usual “buy the dip” dynamic will once again push stocks even higher. But I can tell you that trying to identify the top of a market is very problematic — unless it’s some type of blowoff top with a huge intraday reversal on high volume. We don’t have that here. We just have a situation where there is a lot of money on the sidelines with nowhere to go but US equities. And given the fear of buying right at the top, money managers will hold off in the morning. But if the market pulls back just a bit, then I guess they start worrying that they’re going to miss their chance to buy. So their buying actually pushes the market even higher, thus perpetuating the very dynamic that they’re afraid of.

Hence, a hated rally. Everybody hates it because it looks weak and unsustainable. Sure, investors like it because they’re making money, but they don’t feel particularly comfortable. Sideline sitters hate it because, well, they’re on the sidelines. They’re waiting for “the big correction” so that they can be vindicated for their patience. But the big one never comes. Hence, more hate.

We don’t get to choose the market environment we want to trade in. We have to trade in the market environment that’s in front of us.

A few stocks to watch this morning.

YHOO reported boring earnings. Missed on earnings estimates and the stock is flat. Everyone’s waiting to see who buys the company. It’s like watching paint dry on a humid day.

NFLX is worried about its own growth rate. The stock is trading down to $85. Might be good for a quick dead cat bounce this morning, but longer term,…I think it’s one to stay away from.

VMW reported strong earnings and it’s gapping back to levels not seen since October, when the stock was trending lower. I’d be careful about buying this opening pop. Let the stock settle in for a few days. And if you do buy this gap (again, it’s risky to buy large gaps), just make sure you’ve got an exit plan in case you’re wrong.

Hang tough.

See you in the forum.

Dan Fitzpatrick

Market Update