Dip Buyers; Essentiality of Selectivity, Vigilance -- Rev Shark's Top Thoughts

As Jim Cramer is on vacation this week, we offer these selections from Rev Shark.

Don't Disrespect the Dip Buyers

Breadth is running about even in the early going, but weakness in financials is weighing on the small-caps and giving the bears some ammunition. The Nasdaq 100 ETF  (QQQ) - Get Report is exhibiting some relative strength as the FAANG names hold steady, but it is a mixed bag with no clear advantage in either direction.

I have been watching for an opportunity to press an index short trade, but have not yet seen the price action deteriorate enough for me to add substantial to my position. The S&P 500 needs to take out the 2460 level for me to think about adding a bit more. After that, the 50-day simple moving average around 2454 is important, and then the low on Tuesday at 2446. If those levels start to fall, I will be more aggressive on the short side.

One of the main reasons I'm looking at the short side more closely than usual is that I can't find much in individual stocks that is of interest. My Stock of the Week, SMART Global Holdings (SGH) - Get Report made a nice stab higher this morning, but there just isn't much movement out there.

Over on Real Money Pro, Doug Kass, says he is seeing more negatives that warrant a reaction. I tend to agree, but I want to see further pressure on support levels before pressing more short trades. This market keeps coming back when it is on the brink of cracking -- and it is quite easy to be whipsawed if you disrespect the dip buyers. The dip buyers will be badly burned at some point, but they are not going to go away quickly or easily.

At the time of publication, Rev Shark was long SGH and SPXS, although positions may change at any time.

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Action Alerts PLUS, which Cramer manages as a charitable trust, has no positions in the stocks mentioned.

Originally published Sept. 7 at 11:00 a.m. EDT.

Rev's Forum: Selectivity, Vigilance Are Essential in a Churning Market

"The only way to keep from going backward is to keep going forward. Eternal vigilance is the price of success."

--Charles F. Hannel

If the market wanted to correct, the potentially catastrophic hurricane that is approaching southern Florida this weekend would be a good excuse. However, this market has ridden a wave of optimism since the election and it continues to do so. Bad news just does not take hold. The headlines about a nuclear bomb test in North Korea hit the market for half a day, then were shrugged off. The hurricane in Houston barely caused a market reaction and the political games in Washington, D.C., are more positive than negative.

The bears continue to believe that this market is on the verge of disaster and they supply some very good arguments. Hurricanes, hawkish central banks, low inflation, political chaos, mediocre economic growth and negative seasonality all qualify. The bearish arguments are extremely easy to make and quite compelling, but they still can't gain any traction.

I have been writing that the best way to navigate this market is to defer to the price action. There simply is no way to know with any certainty if, or when, the bearish scenario may come to fruition. Trying to anticipate a major market top is a recipe for frustration.

On the other hand, this market isn't in a roaring uptrend, either. The action is slow and choppy. There are some pockets of momentum in groups such as biotechnology, but other groups such as financials are sending warning signals. Only about 49% of stocks are trading over their 200-day simple moving average of price, so there is quite a bit of corrective action already occurring.

The biggest challenge of this market is that it isn't giving us much of an edge in either direction. It is understandable that the bears want to keep loading shorts in anticipation of a correction. There isn't enough upside momentum to really squeeze them, so they are comfortable adding shorts. The bulls can pick off some trades here and there, but there isn't enough strong leadership to support being aggressively long. Longs are working better than shorts, but there are sufficient issues with the price action to prevent deployment of cash.

So we are stuck in a middle zone. The action is strong enough to prevent us from embracing the short side but weak enough to prevent aggressive buying. My game plan is to try to pick off some long-side trades while waiting for some clarity as to overall market direction. I believe there is good potential for another downside trade in the indices, but it is going to take good timing to handle the trade effectively.

Waiting for this market is much like waiting for Hurricane Irma. There is a foreboding feeling that disaster awaits, but we are in limbo and there is enough optimism to prevent the sellers from taking control. Vigilance and selective stock picking are the best approach at this juncture.

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More From James "Rev Shark" DePorre

• Hurricanes and Hydrogen Bombs Don't Bother This Market
• Mixed Action Continues as the Market Can't Decide on a Catalyst
• Rev's Forum: What Will It Take to Produce Some Emotion in This Market?

At the time of publication, Rev Shark had no positions in the stocks mentioned.

Originally published Sept. 7 at 7:42 a.m. EDT.

Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas.

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Action Alerts PLUS, which Cramer manages as a charitable trust, has no positions in the stocks mentioned.