Traders Will Wear Themselves Out

The Small Caps have indeed caught a bid and are leading the stock market higher. Oil and Gold are also doing well which is not a comfortable feeling for the Bulls. Overall breadth is positive, significantly so on the NYSE. This raises flags as it would be much better to see the NASDAQ catch the MOJO!

Interestingly enough Semiconductors are showing weakness with a "sell the news" reaction to Intel (INTC), Texas Instruments (TXN), and National Semiconductor (NSM). Although it is quite typical for traders to sell Semiconductors on any good news, the stock market is too vulnerable at this juncture to handle significant pressure in a key sector.

Yesterday the market was generally saved by standing on the shoulders of the Semiconductors. Today however, the market is holding up from the out-performance of Small Caps, Oil, and Gold. This tactical rotational phenomenon creates tremendous frustration for most traders. Trends are never established and the market simply flops around in a tight range. Sudden Cliffs always seem imminent as do vicious Spikes to the upside.

Traders with an "all-in or all-out" style experience the most frustration as their hopes from their big bets never pay off and continuously have to be reversed. Eventually they wear themselves out just in time to miss the trend when it finally kicks in. For this reason and considering the current state of the market, we prefer to oscillate between a mildly Bearish and Neutral posture. This approach maintains our stamina and keeps our expectations in check. The time for big bets will be soon enough but we choose not to jump the gun.

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