Rev's Forum: It's a Mediocre Market, but Bears Can't Close the Deal

 | Apr 19, 2017 | 7:42 AM EDT
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"A mediocre idea that generates enthusiasm will go further than a great idea that inspires no one."

--Mary Kay Ash 

The S&P 500, Dow Jones Industrial Average and Russell 2000 ETF (IWM) all hit tops on March 1. Since then the uptrend has been under pressure, momentum has fizzled out and the news flow has taken on a more negative tone. Yesterday, several major stocks, including Netflix (NFLX) , Goldman Sachs (GS) and Johnson & Johnson (JNJ) , responded poorly to earnings reports. This morning IBM (IBM) is set to open down nearly $8. Brexit worries have popped up and optimism about the Trump fiscal program has faded.

Despite this long list of negatives, the bears can't close the deal. They have tried but are unable to push the market into a full-blown downtrend.

Yesterday was a good illustration of how things progress. There were a slew of negatives and the market struggled for most of the morning, but when the indices failed to trade below recent lows the dip buyers showed up and there was steady buying into the close.

This buying isn't bargain hunting by optimistic bulls. It is primarily computer-driven and is designed to take advantage of hopeful bears and underinvested bulls. It is a corruption of sentiment but serves to benefit the algorithms that are focused on using price action to their advantage.

This inability to produce some real emotion that will push the market below key technical levels creates frustration for traders who are trying to find setups they can trade. There isn't enough negative emotion to set up solid snapback rallies, and there isn't enough positive sentiment to produce sustained upside momentum.

The bears can't close the deal, but the bulls can't get the market back on track and generate real momentum, either. The bulls have the edge as they prevent technical damage from occurring. but it doesn't provide much opportunity.

This morning there isn't any major news flow other than a few earnings reports, but we have some bounce action that doesn't offer much opportunity. It isn't easy to chase as there isn't any major positives technically or fundamentally, but the bounce occurs because the dip buyers are so well-trained that they prevent dips from even happening.

To add to the difficulty, we are in a futures-driven market right now rather than one that is focused on stock picking. Events such as Brexit and North Korea are driving currencies and indices, which cause movement in some big-cap names but prevent much standout action in the great bulk of stocks. Stocks are moving mostly in tandem and stock picking is not producing much incremental advantage.

Technical levels are holding and the bears can't seize control, but the lack of upside momentum and the negative news flow is keeping the upside contained. It is a tough slog, but our only recourse is to keep on pushing until new developments occur.

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