Oh my goodness, you have to have a lot intestinal fortitude to come out every day and play this market. I can't think of almost anything most of you would want to do less. This market to nowhere is starting, finally, to play on the emotions of the bulls. While we keep on going nowhere we are seeing the bulls starting to feel as if all is not so good with the market. Although the market hasn't gone anywhere up or down the past two weeks, we have seen a 12% reduction on the bull-bear spread. 43.7% down to 31.7%. The bulls have been given a lot of good tidings up until about six months ago. They were used to moves higher followed by a very short basing period, only to see the market rise higher again. That hasn't happened in quite some time as all we go through is whipsaw to nowhere between the range on the S&P 500 from 2045 to 2119.
So many good-looking, daily charts just aren't playing out and this is frustrating the bulls. It's not blasting the way they've gotten used to it in the past, and now they're finally starting to believe it won't again for quite some time. The change in the action didn't sway them from staying bullish for quite a long time. It was amazing to me to watch the bull-bear spread hang at such lofty levels above 35% for so long, but we're moving in the right direction here. Another few weeks of moving laterally in the range will likely get this spread finally below 30%, and hopefully with some room to spare. We shall see if this trend continues. If the market does break out all bets are off as the spread will almost assuredly move higher again, but if we stay range-bound we should see further unwinding, which is really healthy for the bulls.
When trying to understand a market we look around at the different sectors and see what's holding things up, but on the other hand, what's preventing the market from breaking out. What's bad. Transports are bad, and, in particular, the railroads are not only bad, they are in free fall and that's coming from the likely legislature that will be passed forcing them to use different containers to haul oil based on all the explosions we've seen lately from derailments. The cost will be very high for them, and that cost is being priced in to those stocks. It is not pretty folks.
Huge moves down with bear flags that are now beginning to break down again off those flags. It has been a very long time since these stocks behaved this badly, but every sector over time goes through its bear phase as their earnings get priced differently. Their P/E's needing to be adjusted. It's very hard for the stock market to make the big breakout unless the transports join the ride, but for now there's enough money following other areas, such industrials and financial's. Thus, the market continues to hold up as waits for the bear market areas to bottom out. The rotation still part of the game, but important sectors, such as the transports need to find their lows if this market is to fire higher.
Boredom can be a very dangerous animal when dealing with the stock market. It can get emotional since there doesn't seem to be much to do. When you're at the gambling hall you want to participate. That's totally understandable. That said, no excuse for over playing. In this type of environment it seems wise to avoid the super high P/E stocks or stocks without P/E's. Do what feels right to you, of course, but until the market makes up its mind about breaking out or breaking down it's best to play the lower P/E stock.
More and more stocks do seem to be entering bear markets, and, although lots of those names are sexy names from the past, they should probably be mostly avoided for now. The masses love when these stocks fall as they feel it's an opportunity to get in, but that hasn't been working at all lately. While they all bounce, of course, old favorites just aren't following through for now for the most part. Baidu Inc (NASDAQ:BIDU), Priceline.com Incorporated (NASDAQ:PCLN), Google Inc (NASDAQ:GOOGL). (GOOG), just to name but a very few. Be careful. Bottom line is that until we see the market break one way or the other it's best to be in safer stocks.