Doing Nothing May be Traders’ Best Course of Action

Stocks fell modestly on Wednesday, led lower by the energy sector, which declined 1.1%. The losses were spurred by a surprise report of higher oil inventories from the Energy Information Administration. The commodity fell 2.5% on the day to $41.71 a barrel. Now that the Q2 earnings season is nearing its end, energy prices will have a greater impact on the stock market.

The financial sector took a beating Wednesday, influenced by the drop in oil prices and pressure from declining interest rates. Wells Fargo & Co (NYSE:WFC) fell 1.5% and Bank of America Corp (NYSE:BAC) lost 2.5%.

Ralph Lauren Corp (NYSE:RL) gained 8.5% after its quarterly results beat expectations. Walt Disney Co (NYSE:DIS) rallied following Tuesday’s after-hours earnings surprise and closed the day up 1.2%.

• 7 Dividend Stock Dynamos That Really Crank Out the Cash

At Wednesday’s close, the Dow Jones Industrial Average fell 37 points to 18,496, the S&P 500 lost 6 points at 2,175, the Nasdaq was down 21 points at 5,205, and the Russell 2000 fell 8 points to 1,223.

The NYSE Composite’s primary exchange traded 763 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, decliners outpaced advancers by 1.2-to-1, and on the Nasdaq, decliners led by 1.9-to-1. Block trades on the NYSE increased to 4,786 from 4,735 on Tuesday.

The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) has so far maintained its breakout but is having difficulty advancing above the bull channel that started as a tight flag formation. Generally, the longer a formation takes to develop (break out), the smaller the move that follows.

Also, there is a greater chance of a breakdown when prices meander for a long stretch. But even if IWM were to slip, there is plenty of support under the channel. Support begins at the 20-day moving average at about $121, followed by the June high and support line at $119, and then the 50-day moving average at $117.50.

The Dow Jones Transportation Average continues to be range bound within a 635-point spread from 7,465 to 8,100. Despite the rally from the June low, it’s a long way up to the high at 9,310, made in November 2014. However, the overall pattern is bullish and patience is our only option.

Conclusion

All of the major indices have maintained a bullish stance, but almost all have slowed their pace. This leads me to opine about a subject Raymond James’ Jeff Saut wrote about last week — patience — in which he referenced an article titled, “Investing 101: Be Patient When Markets Are Looking For A Trend.”

The article concludes that in slow, trendless, near-term markets, investors often feel that they must do something. Since they have no basis for doing something, something could be the worst thing to do.

Yes, all of our indicators are bullish, but that doesn’t mean the bulls will reap rewards today. Traders are especially vulnerable to the fear of doing nothing. “Don’t just stand there, do something” possibly still rings in their ears from some authority figure like their father or drill sergeant. But doing nothing can be the best course in slow markets.

Cash is not king, but my timing indicators tell me that the narrow range with many crosscurrents could last for another week or so.

According to the Stock Trader’s Almanac, the month of August during an election year is usually very bullish, up 73% of the time. But with both candidates in the weeds, who can bank on either for future financial success?

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.