If you use a trend-following approach to trading, this has not been an easy market. We had a particularly good example of how challenging it can be with the ugly close last night making it look like overhead resistance had kicked in and a pullback was gaining traction. Of course, that set the stage for a gap-up open today instead, as friendly central bankers in China and positive action in oil enticed buyers. It probably doesn't hurt that it is the first day of a new month, which usually results in some inflows into retirement accounts.
While catching market direction is difficult, what has been even more challenging lately is putting cash to work. There are always a few trades, but building long-term positions is particularly hard for traders that use trend-following and focus on chart setups.
Trend-followers will always lag in bounces after a major technical breakdown like the one we had in January and February. It takes a while for trends to develop. It is too dangerous to be too trusting too fast, which is why the propensity of the market to make V-shaped moves drives so many people crazy.
There is no easy solution; we simply have to keep digging through the charts. To that end, I added positions today in Mitek Systems (MITK) and Quotient Technology (QUOT), not because I'm confident in market direction, but because I like the chart setups.
I continue to feel we are going to see trading-range action develop further but, for now, it has a positive bias. In a trading range we have much greater opportunity to buy dips and it helps the charts develop as well.
I believe that we are much less likely to have V-shaped moves due to waning confidence in central banks. If that is the case, it makes individual stock picking more important, which can be a refreshing change for traders who like digging for charts.