Monday, July 23, 2012

Hard to Be Bullish, Tough to Be Super Bearish, Easy to Be in Cash

I apologize for not doing a market summary this week for those of you that use it for the upcoming week, but I knew there would be no point.   We are in a extremely difficult, very volatile market that in terms of swing trading is almost impossible to navigate correctly.   Even today, we see a huge gap-down that sees really no follow-through to the downside.  Signals are constanly being whipsawed as the market goes back and forth but actually goes nowhere.  The Nasdaq chart below shows how tough things have been as basically the market has gone nowhere over the past two months.

Coiling But Going Nowhere
Chart from TC2000, Courtesy of Worden Brothers, Inc.

We are coiling here and on other indices as well, but your guess is as good as mine as to which direction the market eventually (hopefully?) moves out of this coil.   There are arguments I see on both sides....

Bullish Arguments - We have yet to see a major breakdown in the market from a technical standpoint and bears have been unable to run with several potential headlines from Europe and elsewhere that could have easily sent the market into a new leg down.   I also have a hard time believing that the current administration in Washington is going to allow the market to fall further with a Presidential election hanging in the balance.  On the contrary, I would expect they will provide a "cushion" for any further selling through some sort of intervention (perhaps many sorts of interventions).

Bearish Arguments - Individual charts look like death.   Former big-cap, IBD-type leading stocks like ISRG, CMG, MNST are dead, not to mention former darlings like NFLX, GMCR, DECK, etc.  AAPL is hanging in there and maybe you can say PCLN is as well, but I honestly can't even give you a list of what I would call "leaders" in this market.   Where are they?  How does the market move appreciably higher without a group of strong leaders?   There is also the obvious news tidbit from today of European countries now banning short selling on their stock markets.  If that doesn't shout "we have problems and they are massive", I don't know what does.   

After seeing my yearly gains drop from over 20% at the end of March to a little under 10% as of about a week ago, I haven't made a trade in about six sessions and really don't see myself doing too much going forward.   It remains a very difficult market to do much positive with, especially as a swing trader, so as my title states, it is pretty easy for me to be in cash here.   I'm not a genius and I know my chances of being successful in a market like this are slim to none. 

I do see the bearish argument being stronger here and am watching a few names as shorts, but as I stated earlier, if things do get bad, I think you will see some major intervention come in to boost stocks up in front of the election.   All in all, that mix produces a market that will be much like it has been the past two months - one that moves all over the place but goes nowhere.  If you're daytrading, it's great, but if you're trying to catch 10-15% moves in names over the course of a week or two, it's a recipe for disaster.   Be careful out there.

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