Rev Shark: Individual Stocks Matter Again -- For Now
09/09/2010 7:26 AM
I long to accomplish a great and noble task, but it is my chief duty to accomplish small tasks as if they were great and noble.
-- Helen Keller
One of the most challenging aspects of this market for well over a year has been the highly correlated nature of most stocks. It has been all about the big picture and making the big call rather than picking a good stock or two. Individual stock-picking hasn't mattered much as stocks as a group go up or down together.
With the increasing influence of ETFs and computerized trading, this development isn't too surprising. The vast majority of the volume in the market is from the trading of big baskets of stocks without much regard as to what individual stocks happen to be in those baskets.
I've discussed this in the past, but I bring up it again because the picking of individual stocks has been working much better in recent days. This is mainly a function of aggressive speculative money moving quickly to try to catch some momentum and to produce some relative outperformance. The big-basket transactions are still taking place, but the hot money is having more of an impact at the margins, and that is making for some interesting pockets of trading.
This shift may be occurring because there is very little news flow right now. Earnings season doesn't start for a while and the economic calendar is very sparse. President Obama's speech yesterday generated some partisan reactions, but the market did nothing on the news. We are likely to move big on macroeconomic concerns again quite soon, but for the moment we are adrift and focusing more just on some individual stocks.
I've often found that some of the best trading takes place when the market is in a muddle. In such a situation, traders tend to gravitate toward a smaller group of stocks and it become easier to identify what has the best momentum. That seems to be the case in the last few days as a relative small group of stocks are seeing aggressive action while many others are just drifting around aimlessly.
Technically the major indices are sitting in a trading range, waiting to see which side is going to seize control. The S&P 500 is sitting smack in the middle of its 50-day and 200-day simple moving averages. There is obvious overhead resistance and equally obvious underlying support, but we aren't testing either at the moment. We are slightly overbought and there is some resistance at 1100 of the S&P 500, so the bears have a very slight edge, but it isn't enough to undermine the action in some of the better-acting individual stock.
So overall, I'm happy to report that it really is a stock-picker's market at the moment. Unfortunately, I think we'll see the high correlation between stocks resume as we dance around to macroeconomic concerns, but for now we might as well enjoy the trading while we can.
Overseas markets were mostly green and we have a slightly positive open on the way. Weekly unemployment claims are hitting, and that is going to set the early tone.
