A Tough Market for Active Traders

 | Jan 17, 2012 | 1:49 PM EST
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So far this year, all of the gains have come on three big overnight gaps. The first two times that occurred, we closed lower than we opened, and so far we are on track for that to occur once again. We still have plenty of green on the screens, but it sure doesn't make for very interesting intraday action. There is always some intraday movement in select individual stocks, but it is much tougher to find when you have this very flat and very slow movement.

For the buy-and-hold types and the folks in the media, it doesn't much matter how the market racks up its gains. We are up substantially since the beginning of the year, and therefore it's a fantastic market.

For aggressive traders, this market action is much more challenging. We have had some opportunities intraday to buy dips, but the bounces have been quite short-lived. On the big gap-up days there has been no sustained momentum at all.

Ironically, the lack of sustained momentum intraday is part of the reason there is such aggressive dip-buying. A substantial number of market players are lagging their benchmark indices because they have been underinvested, and the only way they can catch up is by trying to catch a pullback. The big gap-up opens just put them further behind and make them even more anxious to try to add some high-beta longs.

If you aren't heavily invested, you just have to keep on hunting and stay disciplined. The easiest thing to do in this sort of environment is to take on some questionable trades out of frustration and end up being nicked to death when there is no momentum.

If the recent pattern holds, we should finish the day slightly under the open. That ensures that the buy-and-hold crew stays upbeat and frustrates the short-termers who can't gain traction in either direction intraday.

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