The stock market usually does whatever it can to frustrate the most investors.
So when it seems like everyone is bullish, the market struggles. And when most folks are bearish, the market tends to rally.
That’s why it often pays to be a contrarian.
Investors who are willing to go against the herd will often do quite well.
But right now, the market is not leaning much in either direction. There’s just about as many bulls as there are bears. So, the most frustrating action the market can do… is nothing.
And that’s exactly what we’re seeing.
Look at this long-term monthly chart of the S&P 500…
The S&P 500 is sitting right on its 20-month exponential moving average (EMA – blue line).
That’s the defining line between a long-term bull or bear market.
If the index is above the line, then the trend is bullish. If the S&P 500 is below the line, then the bear is in control.
Conditions turned bearish in early 2022. But for the past few months, the bulls and bears have been locked in a tug of war. The 20-month EMA has been a magnet for the S&P 500.
And as a result, everyone is getting frustrated.
Traders who have been aggressively bearish have struggled as the market refused to break lower. And folks who are wildly bullish are frustrated by the lack of upside momentum.
In other words, the market is doing exactly what it does best. It’s frustrating the most participants as possible. Neither bulls nor bears are happy in this environment.
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Fortunately, this is one of those times where traders can actually get paid well to just sit on the sidelines.
Many money market funds are paying between 3.5% and 4%. So, idle cash actually earns something for the first time in many years.
Of course, that’s not the best setup for traders. We’d much rather be in the middle of the action – betting on a big move higher or lower.
But when the market is as stingy as it has been lately – not willing to reward the bulls or the bears – and when the longer-term trend of the market is indecisive, the best option is to sit on the sidelines.
There’s no shame in sitting in cash and waiting for the market to show its next move before committing to one side or the other.
And with the S&P 500 finishing February right on its 20-month EMA, it sure feels like cash is a good position right now.
Best regards and good trading,
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Jeff Clark
Reader Mailbag
When do you think the market will make its next definitive move?
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