- The function of education is to teach one to think intensively and to think critically. Intelligence plus character – that is the goal of true education.
- The time is always right to do what is right.
-Rev. Dr. Martin Luther King, Jr.
Last week we started off with a decidedly bearish day where the market was relentless with it’s downward price action. What a difference 24 hours later. While a little less dramatic the trend on Tuesday was clearly bullish and most of Monday’s action was reversed. Then things quieted down a bit the rest of the week. Somewhat interesting, was the lack of fighting between buyers and sellers on Monday. Tuesday offered only mild resistance compared to Monday but no clear signs that the buyers were in jeopardy. It made it easy if you were positioned in the right direction. The follow through for the rest of the week showed little conviction in either direction. This can happen during the earnings season. Investors and traders are more interested in individual stocks or they are trying to get a picture of the condition of the economy as companies are providing information on sales and other trends. This can also be a sign of market indecision and lack of commitment of investment capital. This fickleness of the market leads to higher perceived volatility. In other words, if you stare at the chart every minute of each trading day you will think the volatility is off the charts. If you only observed prices twice a month you would think nothing much is happening.
Perhaps we will see more of the same this week. A more diverse group of companies are reporting earnings this week. Highlights will be Verizon, Johnson & Johnson, and IBM on Tuesday; Netflix on Wednesday; McDonald’s, Microsoft, and Starbucks on Thursday; and Samsung on Friday.
The SPY range can be 180.40 to 187.00. While talk of a bullish market continues and equally as active is the talk of an impending correction, there does seem to be some resistance to an upside breakout. The lack of a strong breakout to the upside may be nothing more than it just needing time, or it may mean that more money is going to flow into individual names during this earning season. Regardless, it seems that it might be easier to be short an index with a very tight leash, meaning a very conservative exit strategy, or patience might pay off and any sharp dips can be buying opportunities for the very short term. Short term is the key here. A large move in either direction may not last very long and that will make it difficult to establish a long term trend using the latest data.
This type of market can be frustrating to the day traders, but is easier for the longer term investor. Remember to think carefully about what kind of trade you are getting into and why. Manage your expectations. Set the appropriate entry and exit strategies with this in mind. It is easy to get whipsawed day to day just to realize that if you did nothing you would have been better off. Always be prepared and think about what to do if it appears you might be on the wrong side of a trade. Reducing the probability of panic, increases the probability of success.
Good luck and trade rationally.