The markets are facing another bout of weakness after a strong showing on Monday and early Tuesday. Almost all of those gains have been wiped out as the S&P500 is flirting with 1300 again over renewed Greek concerns. But so far we continue holding above Friday’s low, keeping the rally attempt alive. If we honor Friday’s low, starting tomorrow we could have a follow through day if there are nice price gains on higher volume.
While there are a lot of similarities between this year’s sell-off and last year, the big difference is this market don’t seem nearly as frantic. Last year could easily be described as bi-polar as the market whipped from one extreme to the other, but this time around things seem far more orderly, lacking those violent changes in sentiment. If last year was bi-polar, the current market is simply indecisive. Similar Euro and economic headlines are weighing on the market’s mind, but the market is no longer fearing the end of global civilization and is doing a better job of keeping headline risks in perspective. These unresolved issues will continue to haunt us for a while, but the market is acting far more rational and that is giving the market more stability.
Even if the indecision continues through summer, I expect we’ve already seen the bulk of the sell-off. We’ll probably dip under the 200dma or 1257 to go flat for the year at some point, but that will most likely be the process of building a solid foundation for this correction to bounce off of and that violation of support will not be a trapdoor triggering a massive sell-off. Of course this assumes a fairly orderly resolution to the Euro debt problem and modest economic growth. No doubt the markets will unravel if the Euro comes apart, China crashes, or conflict in the Middle East threatens oil supplies. But barring those unlikely events, the market should be fairly stable going forward. Of course there is a big difference between stable and rallying. It will take a period of price consolidation to find suitable resolutions to these headline issues and that will delay the indexes from making new highs for a bit. But while the market might trade sideways, there will be opportunities to locate leading stocks making big price gains once the market headwinds stop knocking them down.
Not a lot to say about individual leading stocks right now as most of the favorites continue trading under their 50dma. But standard bases take at least two months to form, so we shouldn’t be expecting many of these CAN SLIM stocks to start making new highs any time soon. Patience is the name of the game and we just have to wait for the market and individual stocks to move back into buyable positions. If we were being optimistic, we should hope for a tradable fall rally to help end the year on a strong note. If someone has problems sitting on their hands for the next couple months, you’d probably do better buying the dips and selling the rallies. In a sideways market, buying breakouts can be a frustrating and expensive game. No doubt there will be a handful of strong performers, but these will be the exception, not the rule. So be very selective and disciplined with any buys for a while.
And of course I reserve the right to be 100% wrong and revise my opinions as the conditions warrant.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.