Consistency of market action makes the job of trading much easier. That is why traders are constantly looking for patterns that repeat. For example, they have done quite well exploiting the consistent dip-buying action. However, the lack of consistent price action over the last few days is presenting some major challenges for market players.
We had a technical breakdown on Tuesday, an energetic recovery on Wednesday and now things are breaking down again. The Nasdaq 100 ETF (QQQ) is close to giving back all of yesterday's gains as the FAANG and momentum names are being hit. Banks are helping to hold up the S&P 500 while small-caps are showing relative strength. Breadth was stellar yesterday, at nearly 3 to 1 positive, but today its running 2,600-3,700 negative.
The lack of consistency is the hallmark of computerized trading. The machines are jerking the market around because that is how they gain an advantage over slower-moving humans. The best way to deal with it is to change your time frame and not allow the 'noise' to affect you. When the moves are sizable that is hard to do. You have to think in terms of moving incrementally and, in many cases, you need longer time frames and looser stops.
Yesterday was difficult if you held index shorts, but it you viewed the machine action as noise rather than technically meaningful it made it easier to hold. If we take out yesterday's lows today that is going to cause some emotion to build and will be a setup for another sizable move.
I may add to index shorts if the selling pressure persists, but I'm waiting for now. My main task right now is to identify potential candidates to slowly accumulate in this inconsistent action. Names like Health Innovation (HIIQ) , The Trade Desk (TTD) and Nutanex (NTNX) are appealing, but I'm moving very slowly when it comes to additional buys.