The major indices reversed to the upside on Tuesday and closed at the highs of the day, but that outcome was another illustration of market inconsistency. The action under the surface was quite mixed with limited pockets of strength, a large number of stocks hitting new 12-month lows and more poor action in many small-cap names.
The folks in the business media have been generally oblivious to how misleading the indices have been for months now, and that helps to add to the frustration many traders are experiencing. Typically when the indices are acting in this manner there is broad strength and many stocks in uptrends. That is not occurring, yet there are constant comments from market pundits about how the indices are technically extended and in danger of a correction.
There have been brief stabs at rotational action out of FATMAAN and big-cap names and into high price-to-earnings (P/E) growth and small-caps, but that action has not taken hold. For example, the ARK Innovation ETF (ARKK) is still struggling at its 200-day simple moving average and is far from the highs it hit back in February. It is unable to even test the highs that it hit at the start of July, although all the indices except the Russell 2000 ETF are over that level.
There are a few pockets of trading momentum, such as Robinhood (HOOD) , but such action has been very thin. The thing that has been particularly frustrating has been the lack of follow through. There just aren't many stocks coming off support and trending higher. That's due in part to an inclination to sell into strength, which kills rallies, and part of it is due to the generally poor response to some good earnings.
August historically is a tough month for the market, especially when it hits new highs in July. Since 1950 the S&P 500 has dropped 1.3% in August after it hit a new high in July. That fact gives the big-picture bears some ammunition for timing the indices, but it totally misses the point of the extreme inconsistency that is taking place under the surface.
It is a difficult market environment for traders, and it is even more difficult because both the indices and the market experts seem oblivious to what is really going on. The only solution is to be patient and keep slogging away until conditions change.