Bigger Picture

Today”s filter is… fork.

“When you come to a fork in the road, take it.” — Yogi Berra

Nasdaq stocks were already underperforming the broader market during the weeks leading into last week”s top. The Dow Industrials and S&P 500 markets then outperformed by probing new highs last week. They played catch-up (or “catch-down,” as the case may be) by plummeting for the past two sessions.

That”s how the marijuana sector”s current problem began. Nasdaq-type indexes (NDX, Russell) hadn”t joined broader markets in their prior high, either. Then the closely-related Biotech sector began dropping sharply. Speculative premium was getting crushed. 

All of that contributed to my cautious sector posture during the past several weeks. It was only a matter of time, and not much of it. Going all cash Friday might look like a genius move, but even being 30% invested until then was too patient. In fact, I sit here surprised that only five names in our universe suffered percentage losses worse than the teens.*

Sign of strength, or sign that it could still get worse? Can it be both?

Actually, while Nasdaq is still relatively lower, at this moment it is higher. Futures trade electronically almost uninterrupted around the clock. Right now, despite S&P futures probing under yesterday”s low, NDX futures are well above yesterday”s low. This at least improves the potential for a near-term bounce.

I”ll have price levels to consider for buying into renewed weakness, with the assumption of riding a later-day recovery. But it might be a one-day recovery, so “we”re not getting married.” It might be a one-hour recovery, as the broader market remains vulnerable to another downdraft (on steroids).

Market have reached a fork in the road. And they”re going to take it. Otherwise, stick a fork in marijuana stocks for another day, because they”ll be forked. I mean, done.

*

?We”ll we tried the Livedesk feature this evening. And it was pretty neat. A lot more time was spent talking technique than was spent reviewing many stocks. But showing my charting and technical approach with the stocks you know and love apparently made it more interesting. Or, so attendees have said. Good. Anyway, here”s the link… Enjoy!

?http://new.livestream.com/accounts/7617211/events/2865745/archives

?By the way, this is what we”ll be doing for our post-open and pre-close reviews of interesting stocks (albeit in 15-20 minutes each time). The expanded educational discussions will be during one evening each week.

We”re in the Livedesk section, found in the blog”s sidebar, going through today”s charts. Please join us there at 7:05pm ET if you can. My first presentation there, but I believe that it will be recorded. See you soon…

SPECIAL NOTE: “LIVEDESK” SHOULD NOW BE ACCESSIBLE… I”LL BE REVIEWING LIVE CHARTS THERE AFTER THE CLOSE, HOPEFULLY BEFORE THIS EVENING. NOTICE WILL BE POSTED TO THE ACTIVITY FEED.

One stock, two lessons. Big fish in a little pond, and averaging down.

Lesson One: An interesting characteristic about days like this is what I call “the paucity of positives.” We”re seeing a great example today.

There is a sea of red in the our sector”s universe. Only two or three exceptions, and one of them is VAPR.

VAPR had news this morning, which on any other day might have been lost in the crowd. Today it was the only marketing achievement being publicized.

Much more news has been released by many other companies since then. TRTC, USEI, MJNA, PHOT, CBGI… Good for them! But also too bad, because their stocks were already part of the problem. 

That left very little timely information in the sector. To be sure, several stocks opened firm, and have since reversed a little or a lot into negative territory. That left only one news story that already had demonstrated a positive reaction.

Now, this can cut both ways. The stock that attracts all of one day”s buying interest will find it difficult to compete the following day. But at least we can see VAPR has this ability. It will be on any buy list of mine when we start picking at this sell-off.

Lesson Two: VAPR is also a candidate for “averaging down.” Someone who already owns the stock as an investment might be interested in increasing that position. 

Generally, I am opposed to this. Averaging down — buying more of the same stock, but at cheaper prices — certainly seems compelling since it lowers the average cost basis of existing shares. Suddenly, without the stock rising. the “mistake” of buying too soon or of holding too long can be mitigated by averaging those shares with the newer, cheaper lot.

Guess what. You can”t have it both ways. You”re also buying the new shares at a premium. Smart move, Einstein. 

However, I”m in favor of adding cheaper shares if there is some development that makes it worth paying a premium for the newer shares. Performing well in a bad, bad market would qualify for consideration.

Trading around a core position — increasing and decreasing exposure as the market may make attractive — that also might justify buying more at a lower price. But that opportunity I”m not sure has yet arrived.

“Here”s your hat, what”s your hurry?”

I”ve been told this was a useful replacement to “good night, thank you for visiting,” when the visitor didn”t realize it was time to leave. It probably wasn”t very successful — if the guest doesn”t realize he has overstayed his welcome, then he”s not likely to pick up subtle social cues.

So, don”t bother telling this price decline you”ve had enough. It doesn”t care. It came for the free food, of which there was plenty. And it has quite the appetite.

Look at some of this morning”s hits. Does anyone really think XYZ company as an ongoing concern is suddenly worth 10% less than at Friday”s close? Or 25% and 33% less than two weeks ago? Perhaps it wasn”t really worth double or triple then what it had been only one month earlier. (Ya think?)

The point is that this sell-off isn”t the end of the world. It isn”t even the end of the sector. This is just the phase where everyone figures out the last upleg already ended. Stocks generally fluctuate in ranges of perceived valuation. These stocks fluctuate in ranges of enthusiasm. 

The time to buy is when enthusiasm is down, right? Well, yes. And no. Other factors matter, like timing. Take some time to look at charts two weeks ago, when I first bought the morning spikes down on stocks we had been stalking. That was the middle of the week, when selling had had a chance to run its course — and as importantly, buyers had a chance to make their money before the weekend. This may be Monday, but it”s also the afternoon of a surprising day. It”s too early to buy aggressively.

Here”s another problem with getting bullish today. Did you notice the weekend news items (Holder, Maryland, Branson) and the optimism they generated? That makes today”s price action only more cause for disappointment. Better now, when it can fuel capitulation, instead of later when that disappointment can extend a decline. 

But I”m still not suggesting the trend is “over.” The S&P 500 just entered its noon hour at fresh session lows. Technically, after a morning like today, in the context of a second-day trend, this is difficult to recover and likelier to bleed into the next day. I”m not looking for speculative premiums to re-inflate today.

Until search is enabled, be sure to review the most recent video(s), which are arranged alphabetically. Relevant prices are there if you”re eager to bottom-fish. Don”t confuse that with “averaging down,” which I”ll be back later to discuss.

Now, where”s my hat…?