Still Rangebound

The price behavior over the past three months has conditioned investors to be skeptical of all data and all technical formations in the market. This is leading to a very tight range in the three major indices, as very few are willing to step out of the comfort zone and make big bets on the direction of the market.

The news flow has been awful, and headlines are extrapolated to how awful things will be over the coming months. This pessimism seems to have ramped recently -- many who previously doubted the Depression-like scenario are starting to be converted. At this point, even good news seems to have the "yeah, but ..." attached to it. My grandfather was famous in my family for telling me that there are no "yabutts" when it comes to markets. You either make money in your position or you lose money.

The technical picture has beaten the bulls over the head with a hammer. The latest close above the 50-day exponential moving average led to a strong fade of that strength, and the indices came to rest in an ever-tightening congestion range. Every uptick is met with a failure of confidence that the move higher can turn into a trend. Each test at the highs is a failure to convince the "buy low, sell high" crowd to move to the "buy high, sell higher" camp. While bulls are still content to support lows, it seems they are less bullish, flipping the profit position at the first sign of failure at resistance.

No higher high or higher low sustains, and any former channel ranges have been broken. Earnings estimates continue to be lowered, while worsening economic data expectations continue to be revised to be even worse. I heard one analyst say we would see 18% unemployment on the headline number before this is all over. Just a month ago, he was saying 10%.

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At the time of publication, Schumacher was long QLD, SSO and DIA, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.