Indifference and Algos Driving 'Abnormal' Action

 | Apr 19, 2017 | 4:30 PM EDT
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On Tuesday the market opened weak and closed strong. Today it opened strong and closed weak. While this sort of volatility can make for some good trading, that isn't the case with this market. The market swings are a product of indifference and computerized trading rather than strong emotions and shifting sentiment.

There is no fear or greed driving the action. It is just programmers tinkering with algorithms and traders trying to find an edge. Even the news flow doesn't seem to matter much. It is used as a justification for a few hours of action but the day-to-day movement isn't driven to any great degree by headlines.

Unquestionably there are some negatives out there, such as the poor response to earnings so far, with IBM (IBM) being the prime example today, and the lack of progress on fiscal matters by the Trump Administration. A more hawkish Fed isn't helpful either with the economy doing little and bonds acting like a recession is coming.

Virtually every market participant will agree that the market action isn't "normal" and hasn't been for a while, but no one seems to know what is going to cause it to change. In my view it isn't going to change until we have a fairly significant correction. Fear of losing money is the one thing that can shake up the emotions out there. Dip buying is so automatic now that it is unthinking and unfeeling.

This market has been on the brink of a correction for some time and the poor action and weak close today didn't do anything to change that. The indices are still holding above the March lows but the Dow Jones Industrial Average is leading to the downside and you have to wonder if this theme of poor earnings is going to continue.

This is not a healthy market, but structural elements in the way it operates prevent it from undergoing a healthy correction. If you are a bull you should be rooting for a breakdown. That is the only way we will have healthier action and better opportunities.

Have a good evening. I'll see you tomorrow.

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