2 Things to Watch in the Current Market

The market continued its painfully boring drift today. Recently nothing has been able to wake it up for long. For a month now I’ve been talking about the slowing momentum of the rally and how you need to expect oscillations rather than breakaway moves. In that time the market has done little but drift with a slight upward bias. Yesterday and today the market was given “good” news and couldn’t do anything with it. The excitement over the Fed statement yesterday afternoon did nothing but move the market up to where it began the day. This morning’s Retail Sales report managed to push the market higher for about 5 minutes before it came back to where it finished yesterday.

Two months ago each of these news items would likely have been worth about 10 points in the S&P 500. Now -- just a temporary wiggle. Are major players using the good news to sell into and take some profits? Is the recent action something that should concern us? Perhaps. Tomorrow we will get import and export price data and Friday is CPI. Take note of (1) The initial reaction to the releases, and (2) Whether there is any follow through. This will be especially important if the numbers are perceived as “good” for the market. Institutions have a much easier time pushing the market higher in the pre-open by using futures than at any time during the trading day. If they are looking to get out of positions at favorable prices one way to do it is to drive the price up pre-market and then sell just after the open. We may have seen that today. If it starts to become a pattern then that would not bode well for the market.

What’s the positive (and unlikely) scenario for this market? Well, the recent consolidation could be resolved with a strong breakout. It has provided some time for individual names to set up in new bases or put on handles. Should the market begin a new leg up, there should be an ample supply of names to take advantage of it. I believe the action in the NASDAQ is most important. The S&P and Dow are near their highs, but until any breakout there is confirmed by the NASDAQ I would be very skeptical. The NASDAQ led the rally up since the summer, and as noted in Monday’s column, has led most rallies over the years. I’m going to keep an eye on the relative strength indicator I discussed Monday for more clues.

Best of luck with your trading,

Rob
Rob@HannaCapital.com

For those who may be looking to expand their knowledge beyond just market timing, my Hanna ETF Money Flow System utilizes the VIX in generating trading signals for spread trades.

Rob Hanna is the principal of a money management firm located in Massachusetts. He has spent the last several years developing and refining methods for trading in stocks across multiple time frames. He selects stocks using both fundamental and technical criteria, and then trades them using technical analysis techniques.