It’s hard to do nothing.
As traders, we like action. We crave it. We thrive on it. And even when there’s nothing going on and there’s nothing to do, we try to find something – anything – to get us into the game.
But, sometimes… there’s just nothing to do.
That has been the case for the past two weeks.
After several weeks of wildly volatile action, where the S&P 500 routinely moved 40 points or more in a day, the market has gone dormant. The S&P 500 has been stuck in a 25-point trading range – between 2710 and 2735 – for the past two weeks.
Bulls are frustrated because the market hasn’t been able to gain any ground despite breaking out of a consolidating triangle pattern and popping above its various moving average lines.
Bears are frustrated because the market hasn’t pulled back at all despite a Volatility Index (VIX) sell signal and multiple bearish headlines on China and North Korea.
So, the market is doing what it does best: It has frustrated the largest number of participants.
In this environment, cash is KING.
In general, long positions and short positions just chop around – maybe gaining a few pennies one day and then losing a few pennies the next.
Most traders, trying to capture whatever they can, jump into long and/or short positions hoping to catch the bottom or the top. Then, they get stopped out of the trades as the market chops back and forth inside its trading range.
In this sort of environment, most traders get chewed up. They churn their accounts chasing trades on the long side and then on the short side and then on the long side again… yada, yada, yada.
And after a prolonged period of choppy action, those traders look back and notice that they’ve lost a bunch of money – while the broad stock market really hasn’t gone anywhere.
I’ve been there. I can’t tell you the number of times in my 35-year career in the stock market that I’ve tried to trade a “go nowhere” market. But, I can tell you I’ve almost always suffered losses trying to do so.
I did not provide a new recommendation for my Delta Report subscribers this week. And, I know that probably frustrated a lot of them.
We had a lot of folks subscribe over the past month or so, expecting lots of trades in anticipation of increased volatility. And that volatility just hasn’t developed… yet.
It will. Periods of low volatility are ALWAYS followed by periods of high volatility. So, I’m certain we’ll have plenty of opportunities to trade from both the long and short sides of the market over the next few months.
But, for this week, I told subscribers that I couldn’t make a recommendation. Nothing looked good to me. And, the best position was to simply hold a bunch of cash in anticipation of a trading opportunity.
That’s the advice I would give to my mom. And, that’s the same advice I offered to my 20-year-old intern, who is dying to make a killing in the stock market.
Everybody is looking to do something. But, sometimes there’s nothing to do.
This is one of those times.
Best regards and good trading,
Jeff Clark