Stop beating your head against the market

The indexes rose more than one percent today and after five days on the downside you could hear the groans from the sellers and the collective exhale from the buyers! This continues to be one of those market environments where trends don’t exist, swing trading doesn’t swing long enough and the trading ranges make you want to bang your head against the wall. You can’t fight this environment, you just have to let the trends develop and practice patience to the art of zen. If you don’t you will find yourself banging your head against the market and the market will win.

My email box has been inundated with questions over the last couple of months relative to whats working, how to adjust for the risk of the current environment, etc. but, the number one question is how to make money in this environment? First and foremost nothing is perfect. This market is controlled by the lack of clarity looking forward. This has been a challenge since last fall. After hitting a peak in December the markets have essentially traded sideways with some interesting swings on either side of positive. Each time it looks like the trend is going to establish itself for the short term (13 weeks plus) it turns the other direction based on data, news or geopolitics. That is a ship without a rudder essentially. I am not making excuses for the market… simply stating the facts as they have been displayed. The one thing that is working is to follow the story lines of sectors, themes and data… they have led to the parts of the market that have worked at least for some period of time and allowed investors to profit from the story lines.

Tuesday was another one of those turning points with the indexes testing lower and finding the 200 DMA on the S&P 500 index, they pivoted with the S&P gaining 25 points to close back at 2093. This keeps the index well within the trading range and ends the argument, at least for now, that the downside correction was in play. The triple top established with the last turn lower near 2130 is still in play and the resistance at that level remains well defined. Catalyst for the turn today? China stemmed the downside selling! That really was one headline. Home prices rose? True, but not the catalyst. Wasn’t consumer confidence which came in well short of expectations. The technicians said last night that the markets were oversold and due for a bounce off support. That had to be it… because oversold indicators are so accurate for calling turns on the exact day they will happen. NOT! I am going to leave it at the sellers took their shot early in the day to take prices lower, but failed to make a convincing argument and the buyers stepped in to produce a intraday turn around that held into the close. Simple enough… now they have to follow through on Wednesday… Twitter gave some help after-hours with a beat on earnings.

This is just another day in the current cycle… nothing changed except the direction after five days of selling. There is still plenty of work to accomplish and the jury is still deliberating on the direction longer term. To add to the intrigue the FOMC meeting concludes tomorrow and the Fed will interject their two cents worth of opinions on the economic climate and where we are going with interest rates. No one expects a hike in rates at this meeting, but the ground work may well be laid for the initial move to take place in September. The ten-year Treasury bond rose 2 basis points, but it may well rise further based on what the Fed discloses following the conclusion of the meeting tomorrow. It could make the market even more interesting.

Oil price rose and energy stocks jumped leading the upside with a 2.8% gain on the day. Gold continues to build a base and small caps erased a early decline of more than one percent. Buyers were looking for bargains and they found them essentially everywhere as the markets and sectors pushed into positive territory. One day does not a trend make, but we will continue to be patient and let this unfold further before making any decision on how and what will be the catalyst to establish the next trend.