Opportunity follows struggle. It follows effort. It follows hard work. It doesn't come before. --Shelby Steele
Over the last six trading days, the S&P 500 has managed to gain 0.26%, which isn't bad but is much slower than the pace of January's gains. We've seen very choppy, alternating days of strength and weakness, but there's still a positive bias to the action. While the bears continue to mumble about the negatives piling up, the market holds up well and threatens to squeeze those who doubt it.
The primary question I've been pondering is whether this slower, choppier action is the start of a topping process or just healthy consolidation that will set up further upside. There are some negative aspects to the trading, such as the lack of good leadership and weak closes, but overall there has been good underlying support, and stocks have generally held up well. There is no rush for the exits and, most importantly, we have not seen any major technical breakdowns.
What I've been struggling with lately is that I'm trying hard to maintain a bullish bias, but I'm finding it harder to put money to work. In fact, I keep reducing my exposure as stops are hit or profits taken, but I don't find many places to put money to work aggressively. There are stocks that are acting well, but they tend to be secondary names that require shorter time frames. You can make money trading them, but the supply of new ideas is thin and that makes it easy to force trades that aren't optimal.
One thing I've learned over the years is that my ability to find good setups determines my market bias. Even if the indices look great and there are other bullish factors in place, it doesn't matter if I'm not finding stocks to buy. One of my pet peeves is when people say that the market is great but they aren't buying anything. In my mind, a great market means there are plenty of buying opportunities. If you can't put more money to work, that is a negative, not a positive.
In a market like this, I consciously have to fight my inclination to root for weakness to provide more setups. The way for traders to outperform is to have sizable ups and downs, and we aren't seeing that. It has been choppier, but the downside remains very contained and the bears are not making money.
The market continues to act fine and we need to respect that above all else. Negatives are brewing, but they haven't made a difference so far. We just have to stay with this market and watch carefully for an indication that the character of the action is changing. It is very easy to be prematurely bearish and we need to be very aware of a bias in that direction.
We have a very quiet start this morning and not much news. That has generally been good for the bulls, but the bears have been pushing harder intraday and we'll need to watch if they manage lower lows.