Thursday, May 22, 2014

Trendless Market Atrocious For Traders

Poor price volume action continues to plague the indices. After another distribution day Tuesday following a two day rally in diminishing volume, the market managed to surge higher Wednesday and recover all the losses, but once again, volume fell significantly lower, continuing the trendless action over the past month, the Nasdaq drifting higher towards the fifty day moving average and range highs, while the NYSE, DOW, and SP 500 hover near fifty two week and all time highs.

Leading growth stocks barely keep up with the market on good days, significantly under perform on bad days, and few are anywhere near low risk buy points. Any stocks that do manage to breakout from shorter term setups, tend to reverse same day or within a few days. Bitauto Holdings (BITA) broke out from a tight range yesterday, only to reverse lower and bearishly engulf the previous day in above average volume. Not all is bad, Netflix (NFLX) and Sanchez Energy (SN) have started to move up the right side of their respective bases, a cup shaped and double bottom base, in heavier volume.

Short trading ideas have not been any better. Most remain with their setup ranges but refuse to tighten or breakdown. Considering the poor action in the indices and leading growth stocks, monitor short trading ideas closely for potential breakdowns. Krispy Kreme Donuts (KKD) and Jabil Circuits (JBL) continue to tighten around their respective fifty day moving averages.

Trendless markets are atrocious for swing traders. It is too easy to lose money by a death of a thousand cuts. Unless you are day trading or take on more risk by widening initial stops, most positions get stopped out on the same day they attempt to breakout from shorter term setups. Even if a trader has gotten a position or two correct, the insignificant follow through and continued risk in a wider stop, does not make up for the stopped out positions. At this point, cash is still the best position.
Post a Comment