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Where’s the Mo? Markets Wedged in Sideways Trading as Volume Stays Low

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August 9, 2016

(Tuesday Market Open) If the early going is laying the groundwork for today’s trading trajectory in the markets, it looks like it may be another day in the two-plus weeks that U.S. stocks have traded within a 2% range. That’s what market watchers call sideways trading­­—stocks are not appreciably moving in any direction.

That tends to be a reflection of these dog days of summer when earnings are light, economic reports are light, even comments from the Federal Reserve members are light, and traders are getting in those last summer vacation days before the kids head back to school. What might move the markets appreciably this week are Friday’s retail-sales results.

In what may be considered a bizarre confluence of events yesterday, all three major market indexes were sliding despite the upward climbs of a majority of stocks. That’s right, the advancers on the Big Board outshined decliners by 1,679 to 1,257, while better than 62% of volume buttressed hikers, according to MarketWatch. Can that happen again today?

What’s more, by a 205-to-3 margin, advancers led the way. Apparently not by much on a percentage basis per stock because all three major benchmarks settled the session mostly on the flat line. Again. That’s despite tapping intraday record peaks. The S&P 500 (SPX) briefly touched a personal best of 2,185.44 in the early going but charted a ragged trading pattern before closing just a tad lower at 2,180.89, skidding 1.98 points, or 0.1%. The culprit there was a sharp drop in the values of health-care stocks. Low volume also appears to have made a dent.

Big pharmaceutical stocks also dragged down the Dow Jones Industrials (DJIA), which fell back by 14.24 points, or 0.1%, to 18,529.29. The technology-heavy Nasdaq Composite Index (COMP6) didn’t fare too well either after Friday’s record closing. It slipped 0.2%, or 7.98 points to finish at 5,213.14. Like the SPX, it rapped an all-time intraday crest of 5,228.40. Even the Russell 1000 Index saw fresh tops intraday at 1,210.63 Monday, but ended one point shy of its all-time closing high of 1,208.93 set on Friday.

West Texas Intermediate (WTI) prices have managed to scrape themselves off the under-$40 a barrel pavement to higher ground, ending yesterday at their loftiest levels in roughly two weeks. Crude climbed 2.9%, or $1.22 to $43.02 a barrel and are heading to the upside again this morning. The oomph appears to have come from the last line of a press release issued yesterday by OPEC President Mohammed bin Saleh al-Sada, who is also Qatar’s energy minister. He said the cartel is setting an informal get-together in late September in Algeria during the 15th International Energy Forum.

Oil analysts note that this isn’t the first time talks aimed at stabilizing the oil markets have been set. Remember that go-nowhere meeting in Dohar in April when producers couldn’t seem to find any kind of pact on oil-production caps?

“Beleaguered OPEC producer nations that failed to make their case in April—when conditions were arguably more dire than today—are unlikely to move the needle towards any kind of a production freeze in September,” Katrina Lamb, head of strategy and economics at wealth-management firm MV Financial, told MarketWatch.

“There is not much to suggest that observers see anything of substance coming out of these informal sideline chats in Algeria,” she added. Apparently, hope still appears to spring eternal for oil producers.

S&P 500

FIGURE 1: FRESH INTRADAY RECORD

The S&P 500 (SPX), plotted through Monday's close on the TD Ameritrade thinkorswim platform,  touched a fresh intraday peak but was unable to keep it at the close. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Small Business Sentiment Scales. That’s good news from a corner of the hiring field that is still racked with hiring issues—where are qualified people?—and still loath to dump big chunks of money into investment spending amid worries of weakening conditions ahead. For the fourth straight month, the National Federation of Independent Business's small-business optimism index crept up to 94.6 in July from 94.5 in June, better than the flat expectations from market analysts. The monthly snapshot of small-business sentiment, a closely watched measure of hiring, wage and investment that accounts for roughly half of the economy’s output, still sits well off its historical average of 98, according to Bloomberg.

Should Investors Worry About the VIX? When the CBOE’s Volatility Index, the so-called fear measure of the markets, tumbles to the extremely low marks in the 11-range like it has in recent sessions, it translates into a certain sense of contentment in market direction, according to analysts. Or does it? “When there’s no fear in the marketplace, that’s something to worry about,” Jack Bouroudjian, co-founder of UCX, Universal Compute Exchange, said yesterday on CNBC. That’s a contrarian view, of course, to what the VIX represents, but it has many analysts worried that this complacency, coupled with low volume, is a grave omen.

Or is it? Not according to recent research out of the National Bureau of Economic Research charting historical performance of the stock market and the VIX. Periods of high volatility tend to be clustered together, reports MarketWatch. “The stock market’s return whenever the VIX falls below 12 is virtually the same as it is whenever the VIX is above its historical median of 18.6,” columnist Mark Hulbert wrote, citing the research by two Yale professors. The surprising conclusion, he writes: Investors should be able beat the market by reducing their equity exposure whenever the VIX spikes upward, and restoring that exposure whenever it drops back. Having said all that, look for the VIX to start gradually increasing toward the end of August and into September as traders typically look for volatility exposure as we head into the presidential elections.

Keep An Eye on the Pound. The sterling tumbled today to its lowest level against the dollar after a Bank of England hawk, who some consider the only hawk on the Federal Reserve of the U.K., suggested that more easing might be ahead in Britain. That follows the BofE’s interest-rate cut last week, its first since 2009, as it attempts to mitigate the economic shock of the Brexit vote. The sterling fell as low as $1.2968. Key support is just below that at 1.2798, according to analysts. "If the economy proves to have turned down in line with the initial survey signals, I believe that more easing is likely to be required, but that can easily be delivered in coming months," Ian McCafferty told the Times newspaper.

Good Trading,

JJ

@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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