Market Overview

The Market Is Not Acting Right

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In all the years of observing the markets, the phrase “the market (stock) is not acting right” was a statement used by traders to explain a loss they had taken.

Not that their strategy or opinion was wrong, but the market itself was responsible for their losses. And if the market acted right, then their losses would have instead been profits.

With no personal trading losses for this writer over the last two days, there are some serious signs that the market is not acting right.

For example, the unexplained vicious decline and rebound in the last 45 minutes of trading on Monday is not a characteristic of this prolonged bull market.

What we have been accustomed to is slow and methodical grind north, with the market producing incremental gains on a daily basis, unlike the trading action from late Monday.

Related: Have We Seen The Top Of The Market?

The early trading action also cannot be construed as healthy price action. After top S&P 500 components delivered better-than-expected earnings -- i.e., Coca-Cola (NYSE: KO) and Johnson & Johnson (NYSE: JNJ) -- the index at one point was higher by over 12 points when it reached 1837.00.

Then with no fundamental data being released, the index swooned 17 points before falling back under 1820.00. Back in the old days of this bull market, the decline would have been gradual and after finding support, the index would rally, make a new intraday and repeat the process.

In essence, these isolated price moves are indicative of an unstable market that may be a precursor to period of high volatility. Since high volatility is usually associated with rapid declines in the market, the price action of the next few trading sessions may provide a clue to the future short-term direction of the market.

If the market can calm down a bit and resume the rally in the escalator fashion that it has exhibited over the last few years, than new all-time highs are on the horizon.

On the other hand, if this intraday volatility persists, there may be a catalyst while the primary markets are closed that sparks a huge decline off the open. It has been quite some time since the markets have begun a day with huge decline. Anyone familiar with the last financial crisis will know that the index had unprecedented price swings overnight that spilled into the open.

Keep in mind, this price action took place with all the indexes at much lower prices. Back in 2008 and 2009, the S&P 500 Index traded around 1500 before its decline to 666. During that time period, the index had intraday ranges of at least 100 points. If the index were to decline from these current elevated levels, the fluctuations would be even more pronounced.

An old saying in the market is that “That bulls make money, bears make money and pigs get slaughtered.”

Do not be a pig; pay close attention to the price action over the next days. Remember, the markets can move up like an escalator for a number of years and wipe out much of its gains when it goes down like an elevator in a hurry.

Posted-In: Technicals Intraday Update Trading Ideas Best of Benzinga

 

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