Why the stock market is so frustrating right now
Don’t call it a boring market, but an inability to see a sustained move up or down by major indexes can leave impatient investors banging their heads against the wall.
“It’s a feature of the trading range that has effectively hammered the major indexes for … several months,” market technician Katie Stockton said in a telephone interview on Friday.
The S&P 500 index
SPX
has ranged from around 3,800 to just 4,200 since late December. It has moved toward the upper end of that range after a pullback last month around the March 10 collapse of Silicon Valley Bank, but struggled to follow through on the upside over the past week.
Bears have been frustrated by the market̵[ads1]7;s rally from the March slaves despite uncertainty in the wake of last month’s banking chaos, rising geopolitical tensions and widespread expectations of an imminent recession.
Read: Why bears can’t keep the stock market down despite bad news
“When we’ve had short-term ups and downs, they’ve obviously been difficult to take advantage of from a market timing perspective. And they don’t allow people to take a directional bias with any duration. I think that’s where the frustration comes from,” said Stockton, founder and managing partner of Fairlead Strategies.
“It’s been a rough week,” Tom Lee, co-founder of Fundstrat Global Advisers, said in a Friday note.
The S&P 500 hit a two-month high of 4,170 on Tuesday, but then continued to decline on Wednesday and Thursday (see chart above). “You can never really tell what forces the market direction on a single day. This is obviously frustrating for investors,” he wrote.
Shares made small gains on Friday, but ended the week with small losses. The S&P 500 lost 0.1% for the week, while the Dow Jones Industrial Average
DJIA
fell 0.2% and the Nasdaq Composite
COMP
gave up 0.4%>
Is the lack of follow-up a sign that the market is running out of steam?
Stockton said the megacap technology-focused Nasdaq-100
NDX
has lost some momentum, but that hasn’t carried over to the S&P 500. It would take consecutive weekly bars above resistance at 4,155 to make the outlook more positive.
“It won’t necessarily mean we’ve started into a one- or two-year bull cycle, but it will certainly improve the outlook for the next few months,” she said, and could be a counterweight to weak seasons beginning in Kan.
Some market watchers see signs of fatigue and also take little comfort from the decline in the Cboe Volatility Index
VIX
well below the long-term average near 20.
“The market is feeling ‘tired’ and perhaps a bit complacent given the VIX continues to trickle lower,” market strategist Andrew Adams said in a note for Saut Strategy.
“It probably took quite a bit of buying power just to keep stocks up over the past few months amid the fundamental headwinds, so perhaps the bulls are indeed exhausted and need to take a breather,” he wrote.
While there have been no obvious sell signals, Adams said a climb toward the 4,300 region of the S&P 500 — an area he expects to provide major resistance and a “perfect spot” for a reversal — would prompt him to “rush in ” ” risk in a big way, a process he has already started by reducing position sizes and closing some open positions on concerns that risk vs. the reward setup begins to skew to the downside.
As for the frustrating price action, investors may want to get used to a period of relative calm, said Mark Hackett, head of investment research at Nationwide.
In a recent note, he called the current setup the “sandwich market,” marking a transition “between the past few years of unusual market activity from the pandemic and upcoming volatility from the 2024 presidential election.
“Even with a debt debate coming up, which we know will be disruptive, we see this 6-9 month period of relative calm and clarity as a buying opportunity,” he wrote.
See: Here’s how anxiety over the US debt ceiling could play out in markets
