Market Is Directionless – Big 1-Day Moves Are Followed By Reversals

Posted 10:15 AM ET - Last Wednesday the market staged a nasty decline and it fell below the 100-day moving average. The SPY closed below support Thursday and Friday, but we didn't see any follow-through selling. Stocks are trading higher this morning and we are back above SPY $205.70. This is a low probability trading environment and the price action is random. In Friday's comments, I mentioned that I don't like being short overnight. Central banks have been easing like mad and they can spark a rally at any time. Dovish comments from Janet Yellen after the close Friday and comments from the PBOC over the weekend are pushing stocks higher this morning. Chinese officials admit that growth is slowing more than expected. However, they believe they have the firepower to stimulate growth. Japan's industrial production missed expectations and analysts are now projecting 1.5% growth for Q2. The BOJ is out of bullets and they have not been able to stimulate growth. Central banks are keeping the market afloat. Their actions are pushing interest rates down to historic lows. Investors after put their money somewhere and equities are benefiting from a lack of attractive investment alternatives. Last week we learned that corporate profits fell 3% in Q4 compared to a 2.8% rise in Q3. This is the biggest decline 2011 and I sense that disappointment lies ahead. Bad weather (retail, restaurant, and construction), low oil prices (energy sector), a weak dollar (multi-nationals) and higher minimum wages (retail and restaurant) will weigh on profits. The strongest companies announce early in the earning cycle and that will keep a bid to the market this week. As Q1 unfolds, the selling pressure will build. This is a busy week of economic releases. I'm expecting a downward revision to February's "robust" employment report. It was contrary to every other labor report. The market could rally on a weak number because it will give the Fed breathing room. I believe the market is focused on the wrong issue and I can't embrace this rally. Traders are worried about a tiny quarter-point rate hike from 0%. The real issue is economic growth. Global conditions are slowing and trillions of dollars of monetary stimulus have been wasted. The world is poised to go through a natural economic cycle and credit issues will surface. I am flat heading into the day. Ideally, the market will rally back to the all-time high. I am more interested in selling "rips" than buying "dips". The market is very choppy. I suggest focusing on stocks that have nice pace. Look for relative strength/weakness. I'm going to watch this bounce. As good as it looks; know that today’s gains could reverse tomorrow. We have been seeing one-day moves and no follow through. . .

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