Smart Money Avoiding the Market’s Malaise

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On Monday, stocks retreated from what looked on Friday to some traders like a genuine attack on the Dow’s high. However, the act of pulling buyers into a profit-taking run has been repeated several times this year and last.

All major indices fell Monday with the Dow industrials and S&P 500 leading, both down 0.5%. The selling was attributed to several factors, including rising long-term bond yields, an uninspiring jobs report on Friday, falling energy prices, China’s third interest rate cut in six months, weakness in Apple Inc. (NASDAQ:AAPL) and a deteriorating technical situation.

All sectors of the S&P 500 declined except for health care. The energy sector was the worst performer, off 1.9%. Crude oil futures fell 0.2% to $59.25 a barrel.

Gold futures fell 0.5% to $1,183 an ounce. And the yield on the 10-year Treasury note rose to 2.27%, up from Friday’s close at 2.15%, as bond prices fell.

At Monday’s close, the Dow Jones Industrial Average was down 86 points at 18,105, the S&P 500 fell 11 points to 2,105, the Nasdaq lost 10 points at 4,994, and the Russell 2000 was up a point at 1,236.

The NYSE’s primary market traded just 680 million shares with total volume of 3 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, advancers led by 1.1-to-1.

IWM Chart
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Chart Key

The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) is maintaining its current level, but by a slim margin. Immediate support rests on a band that is only 1 point thick, and beneath that is the 200-day moving average at just under $118.

Volume is higher on down days than on up days, and MACD is in negative territory. The only good thing that can be said about IWM is that on Monday, when all other indices fell, it showed a slight gain.

Conclusion

Low-volume days are abhorrent to traders who are attempting to discern a direction, since they tend to be highly volatile due to the absence of the major movers and shakers, i.e., institutional traders. Monday was such a day. Low volume and negative news tend to draw in small traders while the institutional traders sit on the sidelines.

When low volume and high volatility occur near a top, they usually signify a lack of commitment by the smart money. Markets fail to follow through to a new high despite analysts’ bullish comments, and the high, as near as it may seem, disappears from view in an eventual selling spree.

Right or wrong, this is my view of the current market’s malaise — low volume and a failure to follow through occurring as we enter the traditionally slowest months of the year.

I hope that I’m wrong, but if I’m right we will be able to buy our favorite trading stocks at deep discounts to current prices.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/daily-market-outlook-smart-money-avoiding-the-markets-malaise/.

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