Nickels and Dimes

S&P500 daily at 1:15 EDT

MARKET BEHAVIOR
The slow grind lower continues for a fifth day as the market gave up an almost trivial three-points in early trade.

MARKET SENTIMENT
Five days of selling that only manages a 1.5% decline from all-time highs is hardly worth paying attention to, but maybe that is the plan.  The market might try to lull us to sleep before it robs us blind.

There are two kinds of market declines, the spectacular crashes that take everyone’s breath away, leaving us paralyzed with fear and indecision.  The other is a painfully boring slide that chips away nickels and dimes under our nose.  We all know the market is imploding when we wake up one morning and a huge chunk of our portfolio is missing, but when we slip a few points here and there, no one seems pay too much attention.  These are the losses we can easily rationalize away because no one is afraid of 0.1% and 0.2% declines.

But the thing is the slow-moving selloff tend to last longer and do more damage than their faster moving cousins.  Everyone remembers the Financial Meltdown that crippled global markets in the Fall of 2008, but many forget the market had already been selling off for a full year prior to the crash.  Drop five percent in a day and it is headline news.  Drop five percent over two months and no one notices.

TRADING OPPORTUNITIES
Expected Outcome:
The 1.5% dip from all-time highs doesn’t seem to be enough to attract a new wave of dip-buyers and we continue languishing under 1,800.  Sometimes holding near new highs supports recent price gains, other times it signals dwindling demand.  Most stock owners have been conditioned to continue holding weakness because every time they sold, they came to regret that decision as the market quickly rebounded to new highs.  That attitude is keeping supply tight and supporting prices as owners refuse to sell the weakness.  But we also need to worry about the other half of the equation, demand.  With as optimistic as the market’s become in recent weeks, many of the people who wanted to buy this market already have. Without a supply of fearful holdouts to convert into buyers, it is less clear who will fund the next leg higher.

Alternate Outcome:
Markets consolidate gains one of two ways, the first is pulling back, the second is trading sideways for extended periods.  While it seems likely this market will reconnect with the 50dma in coming weeks, it could do that by simply staying at these levels and letting the moving average catch up to it.

Trading Plan:
There is a little something for everyone.  A bear can short the market with a stop above 1800.  A bull can continue holding with a stop under  1,780.  For the person out of the market looking to get in, wait until we reclaim 1,800 before buying.  It is better to be a little late than a lot early given all the clear air under the market.

Plan your trade; trade your plan