Morning Market Thoughts

by DAN Good morning.

Well, another morning….and another pending open that’s just slightly positive. We seem to have buying in the morning that soon fizzles out and stocks close off their highs. The sideways drift of the market continues for one more day, and tomorrow probably won’t be any different. As the sideways drift goes on and on, I’ll likely find myself discussing it less and less simply because nothing has really changed. That’s just the underlying state of the market.

This dynamic will continue and I think a lot of it caused by ETF trading. Buy one ETF and put upward pressure on numerous stocks. Sell that ETF and buy another, and your selling will put downward pressure on numerous stocks, and upward pressure on another group of stocks. So the buying/selling always seems to be balanced. And if one sector seems to be weakening to a point where it’s going to break technically, the buying appears as if by magic to prop it up.

When I was a youngster attending the University of Riverside, majoring in Biomedical Sciences, I was a very curious individual, interested in everything. The classes I was taking were quite challenging for me, but one of my favorites other than organic chemistry (where everything made sense like a pile of leg toys) was physics. Why? Because it gave me an opportunity to study the laws of motion every night by….

….wait for it….

…juggling lacrosse balls. For every motion there is an opposite and equal motion, etc. Every mass stays in motion unless acted upon by an opposite force, etc. All of those things applied to juggling, and I could juggle four balls pretty easily (now, I’d be lucky to juggle two). But the trick to juggling is this: Throw a ball in the air. As it comes down, you start throwing the other one up. When you’ve sent the second ball higher, you reach over and catch the first ball before it can fall to the floor. Lather, rinse, repeat. And you do the same thing, at the same time, with the other hand. Four balls! Impressive.

The central banks are juggling a LOT of balls, but they’re doing pretty well They’re keeping a lot of balls in the air. If you consider this analogy and apply it to the market, I think you’ll be able to see what I mean. There truly are a lot of balls being juggled by a lot of different forces, but the end result is this sideways drift.

In a way it can make things easier because you almost have a safety net. Any big decline will ultimately be caught like a juggler catches a falling ball. But this type of dynamic also leads to complacency. I’ve discussed this in detail, and won’t repeat it here.

Rather than be complacent, try to approach the market more narrowly. Keep a handful of stocks. Maybe it’s just two. Maybe it’s five. Maybe it’s ten. If more, that’s fine — it’s your hand. But focus on a finite number of stocks that are moving in a way that you can understand. Just trade those. Don’t pay attention to much else. Just focus on your stocks. And if one stock stops behaving as you expect it to (i.e. an uptrend breaks), then just put it aside and find another stock that you understand.

Trade the chart, not the ticker.

If you can do that, then this sideways market won’t be so irritating. It will actually cut down on your work because you realize that the best work is focused work.

Focus…and prosper.

–Dan

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