The stock market is now churning. Breakouts that are supposed to lead to big gains are now failing and breakdowns aren’t generating big drops the next day with follow-through selling. Those focusing on the daily action are finding themselves confused, while those that must comment on the markets on a daily basis are being put in a position where big statements are made because they have to be as that is the only thing that gets attention. So for instance the DOW fell over 300 points yesterday and Jim Cramer talked about a coming “crescendo moment” that will make a new bottom for stocks. Watch the market will now just do nothing and go up to nowhere, but when you look at the action hour by hour it feels like big things are happening, when all that is happening is the market is now churning.
Churning markets create dull trading action unless you go on margin or take big risks so you make it to so that small moves generate big swings in your account. Some people trade for the juice like a crazed gambler. That’s why the market wracked up record margin debt in January.
Yesterday, the TLT ETF went up, as it reached a deep technical oversold condition two weeks ago, but the market fell too. That is frustrating for bulls and people looking for a big rally. It seems it should have gone up, but the market is just churning.
The S&P 500 has been trading in a 250 point five percent range now for the past four weeks.
It could trade up and down in a range like this for weeks and even months to come.
What will resolve it?
You got hopes of a big economic rebound that are more than just hopes, but ultimately the big question in the second half of this year will be whether the coming inflation will be “transient” as Jerome Powell puts it and will fade away in the Fall or whether it will just increase for good and prove to be the start of a big secular trend that knocks down the bond market even more.
This will be the question that will define the years to come, but right now all people are focused on are the daily gyrations and are being confused by them when all they are is seeing a market that is now churning for the moment.
And it isn’t just the S&P 500 that’s churning. Gold is doing it too in the $1690-1750 zone and silver in the $24-28 range. It will take a close above $1750 for gold to trigger the next move up in the metal. I think it will happen, but until it does no one cares to even hear about it.
I talked about this topic and other things with Jim Goddard of www.howestreet.com in this interview:
Despite the recent weakness in big cap technology stocks, the biggest problem American investors now face is not actually the stock market, but the bond market as it is no longer acting as a safe haven.
-Mike
