The One Thing You Should Not Do Today

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Editor’s note: Beat the Bell editor Serge Berger will be filling in for Sam Collins until May 26.

Before delving into today’s Daily Market Outlook, I would like to thank Sam Collins for giving me the opportunity to pitch in during his respite. I am grateful for the warm reception and comments from his audience. I hope my daily commentary helped investors see the markets through a multifaceted lens.

Thursday’s action in stocks was more of the same of what we’ve seen in recent days. Low momentum ruled the day and large caps outperformed their small-caps peers as the S&P 500 eked out another new closing high. In other words, the choppy market with its upward bias lived to see another day.

After calling around to various trading desks Thursday morning, I noted a considerable thinning out of staff as some traders got a jump on the three-day weekend. Given that, despite the release of the Consumer Price Index (CPI) and a speech by Janet Yellen scheduled for today, I expect a quiet trading session.

Of course, those could wind up being famous last words. Nevertheless, trying to short a dull tape is a low-probability strategy. For yours truly, this means skipping out early for Memorial Day weekend and remaining marginally long biased with a large cash position. Over my past 17 years as a trader, I have learned that knowing when not to trade is even more valuable than knowing when to trade.

Nasdaq Chart
Click to Enlarge

The Nasdaq Composite recently worked its way back to its all-time highs from 2000, and while I don’t think this will be the great double-top some pundits are predicting, I note that the rise since late 2013 has come on waning upside momentum. The lower highs in the relative strength index (RSI) at the bottom of the chart represent this negative divergence well.

Overcoming a major, 15 year-old all-time high isn’t easy for a major index. Often plenty of backing and filling is needed before an ultimate continuation to new and sustainable higher highs.

I suspect this waning upside momentum will begin catching up with the Nasdaq in coming months. But after a mean-reversion move lower, a great buying opportunity should present itself before the Nasdaq moves higher.

It has been tricky going for U.S. stocks so far in 2015. As I have pointed out in this column over the past week, there are an increasing number of clouds gathering on the horizon that could bring an abrupt end to the choppiness.

I fully expect the second half of 2015 to be an entirely different story — one riddled with volatility at times, but also one that offers active investors wonderful directional moves to pounce on.

As stocks continue to muscle higher on low momentum and volume, I will say it one more time: Never short a dull market.

SPY TLT Chart
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Because this market is very dollar- and interest-rate-focused, and thus more macro in nature than we have seen for some time, two potentially dovish catalysts in the upcoming weeks are the May jobs report, set to be released on June 6, and the June 17 FOMC statement.

Give the non-inflationary data out of Europe this week and the fact that dovish Fed members still abound, these two events have the potential to confirm that rates won’t rise until this autumn at the earliest. This would be supportive of both stocks and bonds for at least another few weeks.

Remember that if we don’t understand the bigger picture, it is difficult to remain objective and easy to start fighting major trends.

I wish everyone a wonderful Memorial Day weekend. Rest up and please don’t forget the cause for the pause.

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.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/daily-market-outlook-the-one-thing-you-should-not-do-today/.

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