Traders Need Two Skill Sets

Like a K-9, the stock market shook off after a nice little rinse. The Bulls managed to show a little muscle and turned the Breadth positive on the NYSE and paired on the NASDAQ. The volume was light at 1.3b on the NASDAQ but heavier at 1.5b on the NYSE further demonstrating the high level of skepticism that still exists. Normally, we would consider light volume on an up day to be an indication of limited further upside. However, this is the reason why pure technical analysis does not suffice. A solid understanding of the macro environment as well as company specific fundamentals (especially during times of skepticism) is exactly what the most successful trader's need in their arsenal to outperform their brothers.

We are still not suggesting that the stock market will move up in a straight line. Indeed, the welcomed return of volatility should provide plenty of shakeouts as the market slowly ascends. Ultimately we are expecting volume to noticeably increase at much higher levels in the averages. Pure technical analysis will keep most players on the sidelines until their fancy chart indicators finally get them involved. Please do not assume that we are disparaging technical analysis either. Simply put, portfolio managers need to have solid skills in both schools of discipline. This is especially true during times of a major market transition.

International Business Machines (IBM) (Incredibly Boring Model) posted solid results and seems to be providing comfortable guidance. In addition, Rambus (RMBS) seems to have also impressed after-hours. On the other hand, Novellus (NVLS) is somewhat disappointing. While most traders will be focusing on the IBM relief (phewww), your Friendly Neighborhood Kcap Team will instead monitor the action in NVLS and RMBS. We believe key tells will be whether or not NVLS can capture some bargain hunters throughout tomorrow's trading session. We will also be closely watching RMBS for signs of building momentum. How these two stocks close tomorrow may forecast the reaction that other companies will experience as they deliver their highly anticipated earnings. Keep in mind that it is difficult to forecast market reactions to earnings from such a small sample. However, you gotta start somewhere!

If You Held a Taser to Our Head:
We will stay invested approximately 90% as long as the market continues to slowly regain trust. However, spiky action to the upside is still an invitation to slightly lighten up with the intention of buying back. Sharp pullbacks should be used to add technology exposure in fundamentally solid names. Slow drifting down action with poor Semiconductor performance as well as poor reaction to earnings would likely have us reconsider the timing of our Bullish view.

Hope you made money. See you tomorrow.

___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (“KTB”) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (“KCAP”) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firm’s principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________

Click Here To E-mail Comments