PM: One way or the other

PM Update

Indecision continues as the market remains stuck in its trading range.

MARKET BEHAVIOR

Stocks sold off early, but recovered lost ground and finished practically flat.  Volume remains light as few are trading the holiday shortened week. The struggle with 1565 continues and today was the sixth-day in the last two-weeks where the market traded north of 1560 but failed to capture a record close.

MARKET SENTIMENT

This is a hard post to write.  Over the last three-weeks we have been stuck in a volatile, tight rut.  It is hard to find fresh insight when the market keeps doing the same thing over and over and over.  Without a doubt, doing nothing means something, I’m just less sure of what that is.  I remain cautious of near-term weakness, but holding together is giving me second thoughts.  It’s not that my earlier analysis is flawed, it just seems early.  (in the markets early is the same thing as wrong)

The market has two options Thursday, finally set a record high, or breakdown.  We are so close to an all-time high that if we don’t finally do it, there are structural problems preventing the market from gaining those last few points.  At no point in the rally has two-points been so difficult and this signals a shift in personality.

The sideways trade is creating through churn what normally happens with a pullback.  Even though the market has been flat, a lot of buying and selling continues taking place.  A bullish interpretation is weak hands are selling to the strong.  The bearish view is smart money is selling to dumb.    In a couple of weeks we will have our answer.

TRADING OPPORTUNITIES

Expected Outcome:
When in doubt, sit it out.  There is no reason to always have a trade on.  Some opportunities are better than others and the savvy trader recognizes the difference.  This is about exploiting the best setups and this market is being stingy.  I remain cautious of near-term weakness, but holding 1550 shows a meaningful depth of buyers willing to prop us up.  This has worked through abnormally light volume, but can the market continue finding support when the normal volume of selling resumes next week?

Alternate Outcome:
Stocks are stuck in this tight range between 1550 and 1565.  We will breakout/breakdown soon, the question is which way.  I am reluctant to own this market here, but recognize the next move could be higher.  There is a good chance we finally close above 1565 on Thursday and put this whole “all-time closing high” behind us.  If the last three-weeks of churn flushed out weak holders and seduced bears to short the market, we could see a decent breakout above 1565.

Stay safe