This Market Action Is Not Creating Many Setups

 | Oct 12, 2017 | 11:18 AM EDT
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It is slow going out there, but that has not deterred the dip buyers that jumped on minor pullbacks and have the Nasdaq 100 ETF (QQQ) and the iShares Russell 2000 ETF (IWM) in positive territory. The S&P 500 ETF  (SPY) is lagging but isn't trying hard for green.

Breadth is negative, with around 2900 gainers to 3300 decliners. New 12-month highs have dropped to under 400. The dip buyers are helping to keep the tone positive but already slow action is slowing further.

What is most notable on my screens it that there are fewer stocks showing up on my scan for names that are moving on higher volume. My lists have been quite active, but they have slowed quite a bit today. There are still stocks like Infinity Pharmaceuticals, Inc  (INFI) , Ardelyx, Inc  (ARDX) and Zendesk, Inc  (ZEN) showing up, but it is much slower than it has been.

Individual stock picking has been doing very well for a while, which is largely a function of the strength in the small-caps off the August lows. This market hasn't been driven to the same degree by big-cap stocks and the FAANGs in particular. We still have plenty of ETF flow that is the tail wagging the dog, but picking stocks has been much more productive lately.

The biggest problem that traders face right now is that this market action is not creating many setups. Too many stocks are extended and there hasn't been any consolidation. I'm not even going to mention shorts, which are nonexistent.

I've been slowly cutting back my positions into strength as they become extended and my cash levels are rising even though I am not particularly bearish. A couple of names that I'm watching here are Yum China Holdings (YUMC) and Blackberry (BBRY) , but until market conditions shift, I won't be doing any sizable buys.

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