Overall Market Unable To Rally

Entrepreneur, Idea, Competence, Vision, Target

The short-term, buy-the-dip strategy that I like to use is a mess right now with the SPX and the NDX indexes out of sync, and the overall market unable to rally or sell off. The Institutional Stock Index provides a good look at the current trend. This index is trapped under its 20-day moving average but holding nicely above the trading range of the previous selloff in March. This is not the look of an index offering up the best opportunity to buy stocks, but then again, with this kind of choppy, unpredictable behavior, the market could be base-building in order to provide us with the next rally. 

I've had two bad calls in a row in which I thought a short-term uptrend was beginning. 

After the May 7 failed rally, I went to 100% cash in my trading account, but also I raised a lot of cash in the longer-term accounts because I was unhappy with the performance in these accounts. 

It turned out that the selling after the May 7 failed rally was just more sideways chop that was needed for a few days in order work off excessive bullish complacency, and to push people like me into cash. Looking back, in a way, I am happy about this failed rally because it gave me the opportunity to take a fresh look at what stocks should be in the longer-term accounts, and now I have re-deployed most of the cash. At the moment I'm happier with the current mix because it will be in a better position to benefit from rising inflation, rising yields, and most importantly, slower overall price appreciation.

The May 14 failed rally seems to me to be more of the same choppy pattern needed to push people to cash and dash their hopes that the market will resume its strong uptrend. When the market looked so bad on Tuesday afternoon, I started raising cash again, but most of it in the trading account. I left the longer-term accounts alone because I had more conviction that these were the right stocks to own even if the overall market doesn't perform well.

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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