On the Teeter-totter
What the market giveth, it also taketh away. How many more ways can we think of to say, "directionless, rangebound market"? Any little price movement results in investors (and media) fashioning every little news snippet into a crutch as an attempt to justify what just happened to their stock/index/market. The news is getting recycled in hopes that if packaged differently, it may have more impact.
Not to sound pessimistic, but it is summer, and in the words of Bill Murray in the movie, Stripes, "It just doesn't matter!"
The fact is that volume is low and activity is low at this time of the year. As Austin so aptly pointed out, the same people remaining in the game are selling at resistance and buying at support, volleying back and forth with each other. Without activity (read that volume), the rangebound trading continues.
While there was economic news today in the initial claims report and the Fed meeting minutes from late June, the content was largely shrugged off or used as an excuse to explain market direction.
Initial claims? The number of new jobless claims this week rose 8K to 393K, slightly above what was expected, but still well within reason. That puts the continuing claims at 3.18 mln "jobless", aka "unemployed", since September of 1992. Just a reminder for those still thinking, "this must be the low from which we are sure to reverse", layoffs continue and show no sign of reversal, which will keep the pressure on consumers, the remaining stronghold of support for our economy.
While the day began and ran for hours within a stones-throw of the zero line for the major indexes, investors were displeased to hear the Fed's Tuesday message all over again. But this time, the words came from the minutes taken at the late-July Fed meeting instead. Same words - reduced capital spending and corporate profits, slowing economy here and abroad, overcapacity, no threat of inflation, etc. Who did not know the Fed was nearing the end of its easing cycle before and after the quarter-point rate cut Tuesday, and who could not remember it today? Answer: brain donors and amnesia victims, respectively.
Seriously, the thinking is that if the Fed knew those facts in July, and offered comment for the first time over three weeks later, it must be serious because it is consistent over time. Hmmm, "let's sell" became the response.
It was a slow bleed on light volume as might be expected, but in no way resembled Nostradamus in predicting the markets' future demise.
Speaking of volume, 985 mln shares changed hands on the NYSE while NASDAQ showed 1.42 bln exchanged. The Dow fell 47 points to 10,229. The S&P 500 dipped three points to 1162. The NASDAQ-100 slid 18 to 1496. This was a great day to plot strategy or catch up on sleep.
But wait, this just in. . .Any chance that CSCO's announcement of restructuring will affect the markets in favor of the bulls tomorrow? While CSCO did affirm their Q1 guidance by noting that the "first week" is in line with projections and that it is beginning to see signs of stabilization, the $0.60 gain in after hours trading may wear off by tomorrow morning. Other NASDAQ leaders were up fractionally in sympathy. Though mildly positive for CSCO owners, this is a company-specific issue unlikely to have any effect on the rest of the markets.
Speaking of which, ready for some charts to make some sense of it all? Unfortunately, the charts do not offer much guidance, but here goes.
Dow Jones Industrials chart (INDU):
Almost like a cereal box game, we can play, "spot the hidden neutral wedges to help Mr. Market find his way". Well that is not so tough, especially on the 60/30 charts. The formations are indicative of a break. We just do not know the direction. The daily tells a different story. We have left the lines untouched for well over a week since drawn, which show a clear break to the downside that now forms a declining wedge. What do you know - the weekly chart shows it too! Near-term support is at 10,200, then 10,125. upside breakout happens at 10,300, but do not hold your breath.
Oscillator-wise, the 60/30 cannot make up their minds. The daily chart is indecisive too, but generally headed down. The weekly leaves no doubt as to the big picture - down. Shorting or buying puts at resistance appears to offer the highest odds of profit.
NASDAQ-100 chart (NDX):
As for the NASDAQ, same game, different cereal box. Neutral wedges on the 60/30 charts with directionless stochastics. The daily chart is oversold and does not have much room to fall until it sees support around 1425 - stochastic choppy with small flicker of bullish light. Yet descending trendline remains intact. Weekly chart is clear in its definition of a bearish wedge along with falling stochastic. Again, the big picture says down for now.
S&P 500 chart (SPX):
The SPX, what I consider to be the real market, adds a new twist to the game. Starting with the weekly chart, unlike its brethren in decline, here we have a neutral wedge, which leaves the door open for a sustained move up. As long as the SPX continues to find support here, a higher low would be created. Perhaps that is wishful thinking for now, as the stochastic tells a different story of an index still in decline. The daily is following suit in a descending trendline and descending stochastic that has yet to enter oversold. 60/30 chart simply lack direction as indicated by their opposing stochastics and hourly neutral wedge. No clear direction here yet, but odds favor the downside for the foreseeable future.
The VIX has been an interesting study lately. Despite the slow bleeding of the markets, the VIX has yet to show any signs of fear. Here we are all the way down near April lows and the VIX now standing at 24.92 has never exceed 28 in the process. Look out below if pessimism actually sets in! Right now investors look like a contented lot even if the market is sinking.
What for tomorrow? No way to tell for sure by the 60/30 charts. It is a coin toss. But any gains are likely to be short lived as the candles near resistance. That would provide a shorting or put opportunity. Likewise, declining support is predictable in the dog days of summer and does not leave much room for bearish profits either. This market is suitable only for gunslinger types confident of their skills and those desiring to learn to prosper from paper trading. Casual dabbling will lose us money in nanoseconds. Long-term directional plays are tenuous at best and losing propositions at worst. They do no make high odds plays right now.
The best we can suggest is to sit on our hands and be extremely selective in what we play. As Austin points out, there are only 1-2 plays per week that allow high odds of profit. None are visible right now as Friday could go either way. Rest assured, a trade is coming, but we will likely not know to which direction until tomorrow after the open.
See you at the bell!