Market participants continue to be held hostage to the next headline about China trade talks. After Tuesday's selloff on concerns about aggressive action against China by the Trump administration there is a bounce here on Wednesday on hopes that China will do more buying of agricultural products. There are very likely to be more headlines soon, but the action is extremely random and quite challenging for traders.
Breadth is the inverse of Tuesday at around 3 to 1 positive, but we only have 50 new 12-month highs and 65 new 12-month lows. This market has been devoid of strong pockets of momentum, which is what most active traders tend to gravitate toward. The only sector that has had unusual strength lately is shipping, with names such as Scorpio Tankers Inc. (STNG) and Nordic American Tankers Ltd. (NAT) leading.
There is some strength in big-cap retailers and in Target Corp. (TGT) in particular, but there continues to be very poor action in recent initial public offerings (IPOs), biotechnology and most high-momentum names. One exception among the high-beta names is DocuSign Inc. (DOCU) , which is breaking out.
Trading style is always an important consideration, but it becomes far more important in market conditions such as we have now. My colleague Doug Kass finds this volatility to be good for his trading. His thesis is to use the volatility to build positions and trade short term. That may work well for his style, but it doesn't work for me.
My style is to focus on picking good stocks when they have favorable technical patterns. The technical patterns right now are not favorable and I have no interest in averaging down my cost basis. My goal is to buy stocks when they have the best chances of sustained upside movement. There are no signs that we are about to see that happen. I'm hoping that earnings season will help to shift the character of the action, but I have no interest in putting my precious capital at risk in a market that is moving in a choppy and random manner.
I'm optimistic about the opportunities, but the three most important things in trading are timing, timing and timing.