Sometimes taking no action is the best course of action. It has been challenging for swing traders this month from a macro perspective because the markets are going sideways. While it had a nice run up from late March to mid April, for the most part, it has sputtered since then.
If you look at the chart for the Dow, the daily price level and some of its technicals are telling the same story that it is stagnating. While you could make an argument that the Dow increased from 49,000 to 50.000 the first few days in May, it has clearly bounced around between 50,000 and 49,500 for the last week and a half.
Look at the technical signals too. The Relative Strength Index has not been in overbought territory for some time. It does remain strong and steady but certainly a sideways direction since late April.
Both the red and black lines of the MACD are flat as pancakes. It is ever so slightly trending down but nothing of significance.
On-balance volume is trending sideways and since mid March it has been staying clearly within a range of resistance and support.
All these signals give us no indication which way the market is going. One significant up or down day does not constitute a trend. We need several significant trading days to determine if we are bullish or bearish.
You can pay your money and take your chances with an individual stock, but it must be telling a compelling story at the micro level. Ideally, you want to trade with the market. Have the wind at your back to increase your chances of success. Unfortunately, a sideways market makes swing trading more challenging.
What are the causes for this? The bulls and bears are in equal numbers. There is uncertainty with the Strait of Hormuz, trade relations with the US and China, and America’s ambiguous positions on tariffs. We need more certainty to provide stability and a positive environment for financial markets.
Standing on the sidelines is certainly no crime and might even be the prudent thing to do. Taking no action sometimes is the most profitable way to go. As the saying goes, you’re damned if you do and damned if you don’t. Don’t ever chase after a woman or a stock. There is always another one coming around the corner.
To see what I mean about the stagnating chart, look at this chart of the Dow:
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