Don’t call it a boring market, but the inability to see a sustained rise or fall in major indexes can have impatient investors banging their heads against the wall.
“It’s a function of the trading range that has effectively characterized major indices for…several months,” market technician Katie Stockton said in a phone interview Friday.
The S&P 500 Index
has ranged from around 3,800 to just under 4,200 since late December. It moved to the top of that range after a pullback last month around Silicon Valley Bank’s collapse on March 10, but struggled to keep up with the upside last week.
Bears were frustrated with the market’s rally from March lows despite uncertainty in the wake of last month’s banking chaos, rising geopolitical tensions and widespread expectations of a near-imminent recession.
Read: Why Bears Can’t Hold the Stock Market Down Despite Bad News
“When we’ve had short-term ups and downs, it’s been hard to take advantage of that, obviously, from a market timing perspective. And they don’t allow people to take a directional bias with any duration. I think that’s where the frustration comes from,” said Stockton, founder and managing partner of Fairlead Strategies.
“It’s been a tough week,” Tom Lee, co-founder of Fundstrat Global Advisers, said in a Friday note.
The S&P 500 hit a two-month high just below 4,170 on Tuesday, but then continued to decline on Wednesday and Thursday (see chart above). “You can never really tell what is dictating the direction of the market in a single day. This is obviously frustrating for investors,” he wrote.
Stocks made tiny gains on Friday but ended the week with small losses. The S&P 500 lost 0.1% on the week, while the Dow Jones Industrial Average
lost 0.2% and the Nasdaq Composite
Is the lack of follow-up a sign that the market rally is running out of steam?
Stockton said the Nasdaq-100 focused on megacap technology
lost some momentum, but that didn’t trickle down to the S&P 500. It would take consecutive weekly closes above resistance at 4,155 to make the outlook more bullish.
“It wouldn’t necessarily mean we’ve embarked on a one- or two-year bull cycle, but it would certainly improve the outlook for the next few months,” she said, and could be a counterbalance to the weak seasons that start in May.
Some market watchers see signs of fatigue and also take little comfort from the drop in the Cboe Volatility Index
well below its long-term average near 20.
“The market is feeling ‘tired’ and perhaps a little complacent given that the VIX continues to decline,” market technician Andrew Adams said in a note for Saut Strategy.
“It probably took a bit of buying power just to keep stocks buoyant over the past few months amid fundamental headwinds, so maybe the bulls are indeed exhausted and need to catch their breath,” he said. he wrote.
Although there were no obvious sell signals, Adams said a rise towards the 4,300 region by the S&P 500 – an area he expects to provide major resistance and a “ “perfect spot” for a reversal – would prompt him to “risk in a major way, a process he has already begun by reducing position sizes and closing some open positions on concerns that the risk/reward setup is starting to tilt at the decline.
When it comes to frustrating price action, investors might want to get used to a period of relative calm, said Mark Hackett, head of investment research at Nationwide.
In a recent note, he dubbed the current setup the “sandwich market,” marking a transition “between the past few years of unusual pandemic market activity and the coming volatility of the 2024 presidential election.
“Even with an upcoming debt ceiling debate, which we know will be disruptive, we see this 6-9 month period of relative calm and clarity as a buying opportunity,” he said. he writes.
See: Here’s how US debt ceiling anxiety could play out in markets