Back Where We Started

It's been a few weeks since I've been doing a weekend analysis of breadth readings and what is forming is a composite of a range bound market. Each weekend I've been highlighting the ups and downs and each swing up offers the possibility of an uptrend continuation while each swing down weighs heavier and suggest the floor may be cracking. Through this I've noted a lot of frustration brewing and pessimism in sentiment.

The indexes continue to fluctuate. Over the past 5 months the majority of price action on the SPX is within 1256 to 1344. During this time there have been windows of opportunity to swing trade, but they have been as fast as an ignited match burning out. Blink and they're gone. Last week it did look like there was some broader based participation on the rally but in retrospect it looks like a mirage. During the last two weeks the cumulative High/Low moved from 25 to 1850 and as it now it's 303.

$USHL5 07/15

During this time there the $BPNYA crossed it's 10 day moving average giving a bullish signal, but as of yesterday it has pulled a smidgen under.

$BPNYA 07/15

Looking at the Market Monitor, there was a breadth thrust during this time as well with the 10 day ratio, the third column after the dates, moving from 1.61 to a high of 2.92 before pulling back. As it now stands at 1.35 and all things being equal, will drop to 1.19, breadth has deteriorated quickly over the last 5 trading days. I consider periods above 2.0 and periods moving from below 1 through 1.5 tradeable periods. Dwindling downward, in this particular case from 2.91 to 1.83 is when I put on the beaks. A lack of breadth indicates to me a more challenging swing trading environment and decreasing candidates. 

From my perspective, of a short-term 3-5 day swing trader aiming for 10%+, I've found this to be a very challenging environment. Even though my time frame is short, the period for profit extraction in this market has been even shorter consisting of a day or two and 5% if lucky before gains evaporate. Unfortunately this has caused some hitches and I've been quick to pull the sell trigger missing out on some excellent gains, as well as taking a few less than stellar candidates to begin with.

With earnings season blooming and a number of heavy weights coming up in the next couple of weeks along with a number of macro issues my expectation is clearer market direction as participants have clearer information to process. Sideways markets tend to suggest balance and this has definitely shown this characteristic as every opportunity for the market to crack has still been bought and each opportunity the market has had to challenge the top of the range has been sold. I would classify this as dynamic equilibrium. Either this is a coiling spring ready to pop to the upside, or a bucket under a leaky faucet waiting for the one drip to break surface tension.