The S&P 500 closed on Tuesday night almost exactly where it closed on May 9. There have been a number of sharp swings caused primarily by reactions to the U.S.-China trade dispute, but neither the bulls nor bears have been able to grab an advantage.
This is classic trading-range action, which can be lucrative for traders that have short timeframes and are very nimble. However, the choppiness can also be quite frustrating, particularly when volume is light and the action is driven by news headlines and computer algorithms.
The key to navigating this market is to maintain an open mind as to how the trading range may resolved itself. There has been a sharp increase in the number of market participants who are anticipating the formation of a major market top.
The bearish argument is quite easy to see. In addition to the trade war issues --- which likely will not be resolved for months -- there are signs of slowing growth, negative seasonality and a bull market that has already run far longer than seems reasonable to many.
The bulls have heard it all before and they still have a very friendly Fed on their side, which has proven to be the only thing that is needed to keep the market running higher. There are few signs of the sort of euphoria that leads to market tops but contrary thinking has been a tough way to time the market for a very long time.
We don't really need to know who is right about where the market is heading from here. What we need to do is embrace the fact that there is this choppy trading range right now. The action will eventually resolve itself in one way or the other and when it does our job will be to embrace that action. It makes it much easier to do that if we don't have a pre-existing bias.
Keep in mind that it is the job of the business media to try to create drama and excitement about what is going on in the market so that they can hold our attention. That doesn't mean that the market is particularly interesting to trade right now, though.
My game plan is to navigate this trading range action by picking off a few trades as they develop. I'm not going to formulate a grand bullish or bearish thesis. I'm simply going to try to make a little money while waiting to see how things resolve themselves. I don't want to be handicapped by making predictions that I hope will come true.
The indices are showing very minor losses in the early going. Retail continues to be a problem although Target (TGT) put up a good report Wednesday morning. The minutes of the last FOMC meeting will be issued later, which may generate some response but mostly it is the potential for new developments in the trade war between the U.S. and China that is the focus.
