Gone Fishing? No, Market Crosscurrents Stir an August Debate

Wall Streeters typically pull up stakes in August, preferring to spend a slow month on the beach rather than staring at dully flickering screens. But this time around a series of crosscurrents, along with the dreary weather in the Hamptons, are conspiring to keep plenty of traders at their desks.

There's no shortage of positives in the market right now. Stocks, which in recent years have tended to slip in August, have been drifting higher. A whopping 152 stocks on the New York Stock Exchange made 52-week highs yesterday -- the most since June of last year. The NYSE Composite, the Big Board equivalent of the broad Nasdaq measure, hit a new high on Friday, the first one since July of last year. Breadth has been good, with advancers outpacing decliners. The Dow Jones Utilities Index is surging, and the Dow Jones Transportation Index is threatening to break higher.

"Yesterday was one of the best days we've seen in a while, in terms of advancers vs. decliners, participation, volume," says Robert Dickey, managing director of technical analysis at Dain Rauscher Wessels. "It's kind of looking like, gosh, it's going to be a pretty good month."

Happy?

But for all those positive factors, there are plenty of negatives to glom onto if you are the worrying sort. Technology stocks have been the recent market leaders, and they aren't even close to their July highs, much less the highs they hit in March.

More troublesome, there is a high degree of market complacency. Sentiment indicators show low degrees of bearishness. That's a problem, because when there isn't much negativity it means investors aren't prepared for when things go wrong. And the Chicago Board Options Exchange volatility index, or VIX -- a measure of the expected swings in stocks, as measured by the options market -- is at extremely low levels. When that's happened in the past, it's often been a good time to head for the exits.

Vapor Rub? VIX suggests investor complacency

Source: BigCharts

"There's just too much complacency in the market to tell us we're going to keep going up," says Jeff deGraaf, senior technical analyst with Lehman Brothers.

DeGraaf separates technical indicators into momentum indicators and what he calls conditional indicators. Most of the recent positives in the market fall under the momentum category. Conditional indicators are things like sentiment. "Momentum will rule the day, but the conditional elements will tell us how much risk there is in the market," he says. And eventually, "The momentum is going to fail on the downside."

Soaking In

Robert Dickey Fishing for market trends

But Todd Clark, head of listed trading at W.R. Hambrecht, points out that some of those sentiment indicators, the VIX in particular, may be giving a false read. With just about everyone agreeing the Federal Reserve will keep interest rates on hold when it meets next Tuesday, and little other news expected down the pike, "There's not really anything to make people think there's going to be a big event to move the market."

And Dickey reckons that the indicators' mixed bag suggests just that -- a market that is still pretty range-bound. "We are not in the position to make a major move in either direction," he says. "But we are going to wiggle around a little. It's a tougher environment -- you can't buy just any old thing. You have to buy the right thing, and the right thing changes all the time."

A good market for those investors willing to play in the crosscurrents. Others might prefer to knock off and go fishing.