The Market Is Trapped

We need new information. That is the only thing that can break the market out of this compression.

PRE-OPEN MARKET COMMENTS TUESDAY – Yesterday the S&P 500 had one of the tightest light volume ranges I can remember in many months. Earnings, the FOMC statement and major economic releases could not move the needle and we are in “wait and see” mode ahead of the CPI tomorrow. I believe today could be dull as well.

There was not much in the way of incremental news. Asian markets were down on weaker than expected trade data out of China. Imports were particularly soft and that might be a sign that China’s domestic demand is light. European markets are down ahead of the ECB meeting Thursday. Another rate hike is expected and the likelihood of a rate hike in July remains high.

Buyers and sellers are content at this price level. Both sides have equally compelling arguments and time will determine which side is right. The volume is terrible and neither side is motivated. We need a catalyst (new information) to push us out of this range and traders are constantly looking ahead for the next piece of news that might spark that move.

When conditions get like this you have to be extremely selective. Heavy volume is a variable that you must include in your searches. Without D1 technical breakouts on heavy volume, the stock won’t have the strength to make a sustained move. The stock will breakout on a nice candle and it will appear excellent. That is how it gets on our radar. However, if there is no volume, you will take a position, the move will instantly reverse and you will be left holding the bag. Look for pockets of strength/weakness. Chinese stocks might provide good shorting opportunities today. We won’t know until we see the price action, but their market was down overnight and FXI is going to breach the 200-day MA. Find similar on the long side. You don’t need more than a few stocks on each side. Wait for your windows to set up and error on the side of not trading. When those windows are setting up, you are watching the stock vs the SPY tick-for-tick and confirming RS/RW.

Support is at $408.65 and resistance is at $413.70. We are trapped inside of the range from last Thursday (post-FOMC).