One major shift in the market this week is narrower trading ranges. Volatility was slowed substantially and stocks are not all moving in tandem.
This is positive for a number of reasons. First, flat action is a good way for overbought markets to consolidate and become less extended. Quite often when stocks go up quickly there is a tendency to look for a sharp drop to fix the overbought conditions but the same can be accomplished more effectively with some slow and flat action.
Another benefit of a narrow range is that it helps charts to develop. Overhead resistance and underlying support become more evident when there is a trading range action and that provides better parameters for risk control.
Flat action tends to make me more bullish primarily because it makes for better stock picking. Stocks trade more on their individual merits when they aren't all moving together based on headlines or strong emotions.
With the very flat action today, my main focus is just some random trades. I'm not thinking about overall market direction and see no reason to think about buying for the long term.
One mistake that market players often make in slower markets is that look for something to do and start buying long term positions even when there really isn't any compelling reason to do so. It is a form of boredom trading but can be quite dangerous as it tends to be very undisciplined.
While the desire to build longer-term positions is quite understandable, it is important to ask yourself if there is any reason that you should rush to put your valuable capital to work today. Are you fearful that the market is going to go straight up from here and you won't' be able to buy? Is that a rational fear or an emotional reaction?
I have a list of stocks I would like to build for the long term but I don't see any reason to think that I should do so today. It is helpful to have some positions so that I can monitor them as they develop but the main reason I would buy today would be boredom and impatience rather than a sound strategy.
We all know that it is important to be patient and give a trade time to work but it is also important to be patient when looking for entry points. Just because you have a large supply of cash, it doesn't mean you have to hurry and put it to work when the market picture is uncertain.
I continue to like the technical setup of Mersana Therapeutics (MRSN) which is my Stock of the Week The S&P 500 is back to its lows of the day and it is looking rather sluggish out there as market players look ahead to the weekend.