Daily Market Update – June 3, 2014 (9:15 AM)
For a change, this week seems to have a lot of news, but that doesn’t mean that much is expected to happen.
The biggest news yesterday was that the once really important ISM Manufacturing Index had to be corrected twice in one day due to an error in the calculation. There’s probably not too much reason that should happen, but neither the original release nor the revisions had much of an impact on the market which traded very lazily throughout the day, although did close at record highs once again.
With today being a Tuesday the reasonable expectation would be that the market would move higher. That’s especially expected because its also a week that contains the release of the Employment Situation Report, which has its own pattern.
So far, as the morning’s futures are shaping up, it looks as if Tuesday may not be paying too much attention to the playbook.
Still, it’s hard to discount the fact that yesterday was another new high, although it continued the incremental pattern of just adding a little more onto the top of the pile.
What’s needed to inspire confidence is blowing through the top. While on the surface that might seem as an open invitation to then plumb the depths, instead it usually encourages additional buying behavior.
The same isn’t necessarily the case in a downward moving market and one that is seemingly inflicting “death by a thousand cuts.” In that kind of case a large sell-off on top of all of those incremental losses, also called a “capitulation” is thought to be necessary to herald turning the corner and moving higher again.
Ultimately, it’s those slow gains or losses that create nervousness and despite the low level of volatility suggesting that the expectations of any kind of blow-out is low, there is quite a bit of nervousness. The low trading volume is one reflection of people not jumping in and eager to participate.
I’m in that camp and am reluctant to embrace the climbs higher and higher.
I saw a great statistic about 30 minutes from the end of yesterday’s close that may have altered somewhat by the close, but was telling.
“….another new record high close imminent for the S&P 500, with 41% of NYSE stocks advancing and 42% below their 50-day moving averages.”
Where’s the good news in that unless you are lucky enough to be holding those select stocks that are actually moving higher?
In essence, the higher moving market is somewhat of an illusion and that’s why you’re not seeing or hearing anyone beating their chests proclaiming to have conquered or bested the market.
So that reluctance to embrace the climb higher is likely to be manifested by limited new purchases this week, as that seems to be the “new normal.”
Back when the market was rising and everything was going along for the ride it wasn’t unusual to have 10 or more new purchases in a single week, due to the prevalence of assignments.
But now, the market continued to rise, but is leaving many stocks behind and so the need to replace assigned positions is lessened for now.
As long as rollovers can get executed that’s not an issue, in fact, it is preferable. It allows income generation while still being able to keep reserves in the event of real opportunity. However, conceptually, the behavior isn’t encouraging for market prospects as a whole.
A healthy market is firing on all cylinders. This one is very tentative and I much prefer functioning in a market with clarity, even if that clarity points lower.
Again, today will be a day that I’ll be much more interested in finding any opportunity to sell new options on existing positions, although wouldn’t completely ignore any apparent opportunity that may come along, but I’m not overly eager to spend too much along the way.