"Personally, I'm always ready to learn, although I do not always like being taught."
-- Winston Churchill
Trading range action isn't anything new or surprising, but what is most interesting about the current action is how inconsistent the action is from day to day. The SPDR S&P 500 ETF (SPY) has flip-flopped from gains to losses for nine straight days now and during that time has lost a minuscule 0.19%.
A number of market players were looking for a sudden surge in hawkishness by the Fed and a quick jump in the potential for rate hikes to be the catalyst for a move out of the trading range. We did have some weakness that lasted about a day, but it was quickly forgotten and the mood turned positive once again.
The bears are making plenty of good arguments lately, but it isn't enough to kill the positive price action. According to Goldman Sachs, there are six strong bearish arguments right now. The first is Fed rate hikes, but the market seems unconvinced that the Fed is an immediate danger. High valuations are another argument, but they have been ignored for a long time now. The sputtering Chinese economy continues to be a problem, and the presidential election has the potential to create uncertainty. There is also concern about sentiment.
One of the biggest drivers of the market has been stock buybacks. There have been some recent articles about how that may be slowing, but the strong credit markets continue to provide plenty of cash for corporate dealing. The big takeover of Monsanto (MON) with a significant premium this morning is an example of how cash is still cheap and readily available.
While those bearish arguments sound quite logical and compelling, there is one big problem -- the markets just don't care right now. If we can shrug off increased Fed hawkishness so easily, why should we worry about these other arguments? The market still has faith in the central bankers and is not convinced that we are going to see a series of rate hikes.
While I understand and appreciate the pessimistic arguments, I'm not inclined to embrace them until we see a clear breakdown in the technical action. This choppy and indecisive action is a bit of a warning sign, but we are still holding key technical levels. We also have the potential for weak seasonality, and the bears keep asking what positive catalysts there might be. Mainly, what is holding up the market is central banks' action, but that is all we've needed for a very long time.
It is very understandable that some market players are anticipating a major market turn. It is going to occur one of these days and with the market unable to make any headway recently, the potential for problems is clear. The uptrend has been under pressure for a while, and we have plenty of technical distribution, but that underlying support is not cracking.
We have a little early pressure as overseas markets were mixed and crude oil is trading down. Japan has been struggling, as the yen refuses to move the way the Bank of Japan would like.
My goal is to try to pick off some trades in individual stock while waiting to see if the indices can break out of the recent trading range. I have been trying some index ETFs to the downside, but have not been able to press that trade and am now waiting for another setup to develop.
It's a trading range and until that shifts the focus should be on short-term trading.