Date: May 6, 2015

Tug O’ War Continues

Like a seesaw or maybe a pinball machine, the major stock market indices continue to bounce from the low end of the trading range to the upper end and back. Remember, that for the past month or so, I have written about the short-term looking somewhat murky, but the intermediate and long-term remain solid. Market pullbacks come in two forms. The first is that price declines somewhat sharply and quickly, which shakes out some of the weak handed holders. The weakness also serves to build up the necessary pessimism to launch the next rally.

The other form of pullback is what we are seeing right now, sideways digestion or consolidation. This ends up frustrating both bulls and bears until both sides pull back high conviction positions in the market and wait for a clear resolution. Oftentimes, the market will exceed one end of the trading range, force action and then immediately reverse and head to the other end of the range where the real break out occurs.

My point right now is that the market is digesting and short-term volatile. It’s during these periods when buying rallies and selling declines is the worst plan until the skies clear. Just two days ago, it looked like a run to the upside was possible. Now, it looks like lower prices lay ahead.

Sell in May and Go Away? I will dive into that tomorrow.

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Paul Schatz, President, Heritage Capital