Right down Santa Claus Lane. The big man has finally arrived and the markets have rewarded the bulls with profits this past week. Light volume has continued, but the bulls have remained in control throughout the week. Bonds have finally sold off, fueling the surge higher in equities. The enthusiasm and optimism has increased, but this is no time to blindly buy without a plan. What Santa has giveth, he can taketh away at any time.
That is not to sound bearish, it is simply to mean we must stay on guard at all times rather than becoming complacent. This is not an environment that has been kind to those who treat it as safe. Rules still apply and strategies you have developed must be correctly implemented to reduce risk and net safe rewards. The last thing we want is to be whipsawed to the downside losing what we just gained. Fortunately, I think we will have some bullish weeks ahead, but I fear it won’t be as many as we’d like.
Nothing has changed except more optimism and seasonal confidence in equities. Funds are chasing performance, but the economy is still not strong and the global economy is very bearish. Current economic data is better than most anticipated, but that is not to say it is bullish. Just because we didn’t flunk with an “F” doesn’t mean we should be ecstatic with a “D” grade. Europe has more issues than most care to think about as it’s not fun to be pessimistic. It’s just a matter of time until this bearish news wears down the bulls. QE3 may be the only way to bypass such news for a lengthy time, but with the markets strong as of late, it will be hard to justify such a capital infusion. A downtrend may start sometime in January and I believe without QE3, the markets may roll over sometime in late January or early February as funds reduce exposure in the new year. Again, as most of you who follow me regularly know, I don’t make predictions, I simply form educated opinions and trade what is in front of me instead. This allows for greater flexibility while still trying to understand the forces at work.
The bulls have shown strength and I think we should have a few weeks of this minus some select bearish days here and there. Look for sector rotation, not necessarily a straight shot up in the indices. Keep your eyes posted on the bond market for any possible tells. If bonds start rising again, we need to be concerned with equities losing support.
We have a shortened week and nothing significant this week in data. Europe is still the economic data that trumps all.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Dec 27 | 09:00 | Case-Shiller 20-city Index | Oct | -3.0% | -3.0% | -3.6% | ||
| Dec 27 | 10:00 | Consumer Confidence | Dec | 60.0 | 58.0 | 56.0 | ||
| Dec 28 | 07:00 | MBA Mortgage Index | 12/24 | NA | NA | -2.6% | ||
| Dec 29 | 08:30 | Initial Claims | 12/24 | 370K | 368K | 364K | ||
| Dec 29 | 08:30 | Continuing Claims | 12/17 | 3625K | 3600K | 3546K | ||
| Dec 29 | 09:45 | Chicago PMI | Dec | 59.0 | 60.1 | 62.6 | ||
| Dec 29 | 10:00 | Pending Home Sales | Nov | 1.0% | 0.6% | 10.4% | ||
| Dec 29 | 11:00 | Crude Inventories | 12/24 | NA | NA | -10.570M |
GAME-PLAN
As discussed in the introduction, the plan is to stay aware and keep our emotions in check. We do not want to get wrapped up in the bullish enthusiasm so much that we miss any red flags coming our way. However, we don’t want to over-analyze red flags and miss out on the bulls run either. Simply being mindful of that is many times the solution to the problem. This is a valuable lesson and rule. If that is not in your list of self-made rules, consider adding it.
My strategy is to be patient and keep a large shopping list of stocks showing strength as of late. This ensures I do not feel the urge to chase stocks as I will find something to buy on my shopping list when the price is right and the timing is correct rather than feeling forced to chase a stock because my list is too small and I don’t want to miss out on the action. We want to buy at the proper buy points, buy near support areas. We do not want to get stuck justifying a bad purchase far from support because it’s the best chart on a small shopping list.
I did some profit-trimming on Friday, per my StockTalks, but will be ready and willing to put that money to work come Tuesday and Wednesday. I will look to be very aggressive once again when the opportunity presents itself. I have allocated a fair amount of capital in the market creating numerous small positions watching for the right time to press hard with larger purchases.
You can follow my moves here for free.
STOCK RADAR
Since I do not know how long this bullish move will last, I am still sticking with stocks showing relative strength over the past few weeks rather than more speculative stocks that may need a longer time-frame to net strong rewards.
Acxiom (ACXM)
ATMI (ATMI)
Brooks Automation (BRKS)
Cambrex (CBM)
Caribou Coffee (CBOU)
CryoLife (CRY)
Convergys (CVG)
Denny’s (DENN)
Entegris (ENTG)
FSI International (FSII)
Flotek Industries (FTK)
Glu Mobile (GLUU)
Key Energy Services (KEG)
Kodiak Oil (KOG)
Legacy Reserves (LGCY)
Cheniere Energy (LNG)
Mentor Graphics (MENT)
Magnum Hunter Resources (MHR)
Momenta Pharma (MNTA)
Newpark Resources (NR)
Nuance Communications (NUAN)
Prestige Brands (PBH)
Premiere Global Services (PGI)
Parker Drilling (PKD)
Perficient (PRFT)
Ruth’s Hospitality Group (RUTH)
Santarus (SNTS)
Spectrum Pharma (SPPI)
ViroPharma (VPHM)
Web.com Group (WWWW)
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long LNG, CBOU, FTK, MHR and GLUU, but positions may change at any time.
