Churn Baby, Churn (Market Wrap Up 04/26)

The $SPX fell 0.43% to close at 1212, as we made another marginally higher yearly high today. To be sure, momentum is waning, and the new highs we are making are not particularly breathtaking given the underlying action that we are seeing. Many intraday moves higher were faded into the bell today.  Let’s be clear, the real issue is whether we are simply in a period of tight trading before our next move up, or whether we are slowly sliding down the rope before the bears really seize control and we go crashing down.  The reason why I say we are still in somewhat of a neutral, consolidating range despite making fresh highs is because of what I am seeing in the chart below.

As you can see, we are churning at the lower trend line of the rally since February.  It is a real plus for the bulls that we remain above the 20 day moving average after having tested it twice last week.  However, as I said last evening, the longer we churn here the more likely it is that we will eventually break below it.  Lower trend lines are supposed to serve as a supporting reference point, where bulls aggressively buy a dip there.  Here, we are seeing a mentality that the market is merely “hanging out” at the lower trend line, rather than sharply bouncing off of it.  This is something to keep a close eye on tomorrow and beyond, but it is probably not something worth acting on to the short side quite yet.

I raised my cash position to back over 50% today, as I sold out of $AES and $COCO.  Perhaps I am being too cautious, but frankly I am at peace with the idea that if we catapult higher tomorrow I will not reap the full reward.  For me, the stock market is not just about potential reward, but rather the reward relative to the risk involved.