"Human behavior flows from three main sources: desire, emotion and knowledge."
The big question for market players this morning is whether the news flow is going to increase market volatility. The biggest trading challenge recently has been the limited reaction to news events. Despite the North Korean situation, two major hurricanes, political chaos in Washington, central banker rumination and seasonal weakness, the indices remain quite sedate.
The pattern for a while has been a one-day selloff followed by a quick recovery and then very limited volatility. The dips create some hope that we finally will see increased volatility, but it dries up quickly and we end up with action such as yesterday when the indices barely budged and breadth was dead flat.
The bears use this action to predict that the market is set up for the long-awaited correction, but they keep waiting for it to come to fruition. The market keeps shrugging off the bearish arguments and the computer algorithms continue to operate with a bullish bias.
It is the bullish bias of the computer algorithms that is the biggest obstacle for the bears. Rather than trigger a logical selloff, bad news is triggering "buy the dip" setups. When there is bad news, such as North Korea on Tuesday, the reaction of the market isn't how deep the selloff will go, but how soon traders can jump in and buy.
This morning there is a little anxiety in the air as it looks inevitable that Hurricane Irma is going to tear into Florida over the weekend. There is still a chance the hurricane's track will shift, but the uncertainty of what is going to happen is creating some market concern and we are set up for a softer open.
It is difficult trading environment because the emotional response to news is so limited. When news produces a big move there is a series of reactions that create trading opportunities that in turn create trading reactions, but we aren't seeing any of that.
I'm not sure what it is going to take to shake this market up and produce more volatility, but the action yesterday showed a very high level of indifference. It isn't the headlines that are going to upset market players but some price movement that may push them to act.
We have a soft open this morning as interest rates continue to fall, the dollar weakens more and worries about Hurricane Irma grow.