Market Is Trapped In A Range – No Drivers to Force A Breakout/Breakdown – Cash Is King

May 8, 2014
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET (Market Open) - Yesterday, the market reacted to comments made by Janet Yellen. We tested the downside early and stocks rebounded sharply. I am flat and happy. After Tuesday's decline my puts were back to breakeven. As I mentioned yesterday, my positions were on a short leash and I needed to see follow-through selling. Fortunately, I was able to scratch the trades. I did not get the post jobs report move I was looking for and time decay was becoming an issue. China posted better-than-expected trade numbers. Imports and exports grew by .8% and analysts were looking for both to decline by 4.5%. Last month’s trade numbers were horrible and it looks like they have adjusted. The same can be said for initial jobless claims. Last week they spiked to 344,000 and this morning they declined by 19,000. Seasonal adjustments and Easter played a role. The economic releases are fairly light next week. China will post industrial production and retail sales. The numbers should be soft and they could weigh on the market. Earnings season is winding down and the strongest companies have posted. Retailers will start announcing and I believe the results will be dismal. Bad weather will take all the blame, but I believe there are fundamental issues at work. There are simply too many stores. Visa and MasterCard have reported growth so it is not a spending issue. Whole Foods caters to the high-end shopper, but every other grocer is offering organic food (margins are declining). Supermarkets are facing stiff competition from department stores, dollar stores and even home improvement stores. I can buy a hammer and a pizza at Target, Wal-Mart and Menards. I see the same issue with clothing stores and I see over-saturation in the restaurant space as well. We don’t have a catalyst to push the market higher and I still believe there is room for a correction. Stocks with high P/Es are under serious pressure. If growth in China slows, cyclicals and industrials will get hit. The Fed will taper and the bond purchase program will end in October. Buyers are still engaged. As long as growth in the US and China treads water, we will be stuck in this trading range. If we don't see signs of pent-up demand and growth in China slows, the market will correct. Until we have a breakout or breakdown, I suggest sitting on the sidelines. If we do breakout, I will not carry overnight long positions. If the market breaks down, I will by June puts. My entry points are SPY $186, $184.50 and $183. The action today will be very choppy and light. Traders don't want to take large positions in this directionless environment. Don’t waste your money trading this choppy market. . . image

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