This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Assessing the Market's Mixed Messages

NEW YORK (TheStreet) -- If you have been trading the markets the last couple of months you have probably recognized that something doesn't seem right. If you traded these markets last week, then you really know something doesn't seem right.

The large swings last week were uncanny. It is assumed that the massive swings we saw are a day traders dream, but I wouldn't be so sure as they were fairly hard to navigate. The end result though was about a 53-point move in the S&P 500 Index  to the upside that almost matched the 58-point previous down week.

Underneath the Surface: We have recently had multiple distribution days (down days on heavy volume), but no recent accumulation days (up days on heavy volume) so one could speculate that the rallies on lighter volume are being used by large institutions to sell into. The facts are that the discretionary sector is still underperforming, while the sectors considered more risk averse such as utilities are outperforming.

Although all of this sounds ominous (and if you are actively trading it feels ominous) I'm still of the belief that this is all part of a healthy correction within a bull market. After a five-year bull run, it makes sense that we pause and digest the enormous gains that have come since the 2009 bottom. The implications of that are more volatility, mean reversion, and more realistic valuations as opposed to momentum being the primary driver. Put another way, fundamentals will now start to matter.

So What's Next? The truth of the matter is nobody knows, but I would assume the volatility, at least for the rest of 2014, is here to stay. I am of the belief that the S&P 500 will visit the 200-day moving average (MA) in the not to distant future. Whereas before I assumed that meant a decent sized correction, I am starting to wonder if perhaps all these price swings are 'buying time,' in that they are allowing the 200-day MA to catch up so that the two shall meet under circumstances that don't necessarily result in a large correction or crash type scenario. This would then be referred to as a correction through time rather than price (but to short term traders might not feel so smooth). We saw a lot of that last year, but on a shorter time frame. Perhaps 2014 will end up as an entire year of correcting through time. If that is the case then investors will have a stale year, but traders if they play it right can greatly benefit.

Are Recent Earnings Reactions a Sign of Weakness? One thing we have seen, albeit still with a very limited sample size, is how earnings reactions are panning out. International Business Machines Corporation  (IBM), which did not beat both top- and bottom-line expectations fell 3.3%. Google  (GOOGL), which also missed street expectations, but reported a fairly decent quarter fell by 3.7%. Chipotle Mexican Grill (CMG) which beat street expectations, gapped higher but then fell about 6% intraday.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,548.35 +148.68 0.91%
S&P 500 1,930.65 +26.64 1.40%
NASDAQ 4,387.2320 +71.1580 1.65%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs