Deja Vu

End of Day Update

MARKET BEHAVIOR
Stocks took investors on another wild ride.  This time we surged higher midday but gave it all back by the close.  We are seeing enthusiastic moves, but few last more than a couple of hours as we remain stuck between 1,860 and 1,890.  So far the market is holding above the 50dma, but there are only so many times we can test it before it gives way.

MARKET SENTIMENT
This market has everyone chasing their tails and reactive traders are getting carried out in body bags.  The problem is most of the market is trading with a bias.  Bears sell every dip and bulls buy every rally.  With these whips, that guarantees buying high and selling low.

The reason we are stuck in this range is each side is so entrenched that war with the worlds largest energy producer or the best employment report in years is enough to convince people to change their stubborn outlook.  Bulls are bullish and bears are bearish regardless of what is going on around them.  Why this matters to the rest of us is markets only move when people change their mind and start buying or selling to reflect that new outlook.  I have no idea what will break this logjam, but it needs to be bigger than war or the strongest hiring binge in years.

TRADING OPPORTUNITIES
Expected Outcome: Stalling near the upper end of the trading range
Summer is often a slow time of year because most big-money decision makers are on vacation and the junior traders don’t have the authority to initiate large positions.  Expect the sideways trade to last until everyone comes back in the fall.  But since we are at the upper end of the recent trading range, sideways could include a 100-point dip to the 200dma.

Alternate Outcome:
As turbulent as recent trade has been, the longer we hold these levels, the more likely it is the resolution will be to the upside.

Trading Plan:
Anyone who’s been reacting to these swings has been getting chewed up.  Without an exploitable edge, the best trade is to not trade.  Unless buyers step in to save this market, expect it to fall back into the heart of the trading range, but without a fundamental catalyst this won’t lead to the larger correction many are calling for.

Plan your trade; trade your plan