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Which is the Better Side of the Market at the Moment?

With the near-term trend in doubt, traders may be more successful shorting


Stocks recovered from a sharp opening sell-off Thursday that resulted from several block sellers’ disappointment over recent economic data. In the first half hour of trading, the Dow industrials fell over 120 points, and the remainder of the day was spent buying back those losses.

With Q2 ending in just two sessions, some attributed the early losses to quarter-ending portfolio adjustments. Whatever the reason for the selling, the steady buyback was impressive.

Initial jobless claims fell to 312,000 where a decline to 310,000 was expected. Personal spending rose 0.2% in May from April, but adjusted for inflation, the metric actually fell.

St. Louis Federal Reserve President James Bullard suggested that interest rates should rise sooner rather than later. But Fed watchers paid only slight attention to his remarks, since Bullard is not currently a voting member of the Fed. It appears that such a statement could be no more than hype, or “moral suasion,” which is meant to test the markets and bring them into line without direct Fed intervention.

The yield on the 10-year Treasury note fell to 2.525%, and gold futures fell 0.5% to $1,316.10 an ounce.

Wearable action-camera maker GoPro (GPRO) went public at $24, the high end of its expected range, and closed up 31%.

At Thursday’s close, the Dow Jones Industrial Average was down 21 points at 16,846, the S&P 500 fell 2 points to 1,957, and the Nasdaq was off less than a point at 4,379. The NYSE traded a total of 2.8 billion shares and the Nasdaq crossed 1.6 billion. On the Big Board, advancers slightly outpaced decliners, but on the Nasdaq, there were slightly more decliners than advancers.

Nasdaq Chart
Click to Enlarge

Chart Key

Although the Nasdaq successfully tested support at 4,344 following Tuesday’s key reversal day (KRD), that support barely held on Wednesday and Thursday. Meanwhile, MACD is flat. Some may say that the action of the past two days neutralizes Tuesday’s KRD, but I’m not quite ready to be so bullish.

DJT Chart
Click to Enlarge

One reason that I’m not an outright bull is the Dow Jones Transportation Average’s meek response. This index was a roaring bull for all of last year. Now it is trading in a very narrow range, and until it breaks to a new high, must be viewed with suspicion.

Conclusion: The short-term future of the market is still in doubt despite two rebounds following Tuesday’s key reversal day. And while the market treads water, public sentiment has become more bullish. The AAII Sentiment Survey released Thursday reads 37.2% bullish, up from 35.2% the week before, but more importantly, only 21.1% are bearish versus 24.1% the prior week.

Until we see a solid response from the institutional bulls, I remain on the sidelines. Traders, however, may take either side of the market. Just be aware that the near-term trend is in doubt and, thus, they may be more successful on the short side for now.

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,

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