Rev Shark:
Be Vigilant as the Market Walks the High Wire
11/10/2005 8:50 AM EST
I've never forgotten for long at a time that living is struggle. I know that every good and excellent thing in the world stands moment by moment on the razor-edge of danger and must be fought for -- whether it's a field, or a home, or a country.
--Thornton Wilder
The market continues to act extremely well, but it would be foolish not to recognize that we are always walking the razor-edge of danger. The biggest problem this market faces now is that the bulls may be a little too cocky and overconfident. When they forget that good things only come through struggle and that the chance of a something negative always is out there, they set themselves up for a fall.
The most remarkable thing about the action the last several days has been the resiliency. Although the major indices are all technically extended to some degree, we have barely pulled back at all. The market can consolidate gains by simply running in place, but normally there are enough folks with short-term time frames who desire to lock in profits that there is net selling picture.
The only reasonable conclusion that can be drawn is that there are a lot of folks anxious to put capital to work on a dip. In fact, they are so anxious that they don't even allow the indices to pull back more than a few points before they jump in.
The major danger the market faces is that those dip buyers may be scared away for some reason. Just because they have been out there the last few days doesn't mean that something can't happen to make them less enthusiastic about being in the market. We have to monitor the action of the market on a pullback very carefully. If the bids start to disappear, speculative action slows, breadth drops and then we need to become more cautious very quickly.
But for now, the market continues to act extremely well. There seems to be a good supply of underlying buyers who are looking for places to put their cash. Crude oil has been soft, which is helping to relieve some pressure and provides a source of funds looking to rotate out of energy names and into other sectors.
The Cisco (CSCO:Nasdaq) report was OK last night, but the guidance was soft. Cisco falls into the same category as Dell (DELL:Nasdaq). It was a major influence in the past but has now grown to the point that it is almost a commodity producer, rather than an innovative growth stock. There may be some fallout from Cisco, but like Dell, the market is not likely to be too concerned about the struggles of a mature elephantine company that has been a laggard for years.
For now, the market is walking the razor's edge. Danger lurks if we slip, but the potential for gains is high if the bulls can continue to maintain their balance. Our job now is to be extremely vigilant and to be prepared to act quickly as the market walks the high wire. Don't be overly anticipatory here. Let the market tell the story and be ready to react.
The early action is slightly negative. Overseas markets were generally positive, as interest rates were left unchanged by the Bank of England. Oil is down a bit again and gold is flat.
Position: No positions in stocks mentioned.
Gary B. Smith:
