Why Is The Stock Market So Frustrating Right Now?

Don't call it a dull market, but the lack of major indexes to make a prolonged move up or down may have impatient investors bashing their heads against the wall.

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"It's a function of the trading range that has effectively characterized the major indices for...several months," market technician Katie Stockton explained over the phone Friday.

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Since late December, the S&P 500 index has swung from roughly 3,800 to just shy of 4,200. After a dip last month after the March 10 collapse of Silicon Valley Bank, it has advanced toward the high end of that range but has failed to follow through to the upside in the last week.

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Bears have been irritated by the market's rise from March lows, despite uncertainty in the aftermath of last month's bank crisis, mounting geopolitical tensions, and widespread fears of an impending recession.

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"When we've had short-term up and down moves, they've been difficult to capitalize on, obviously, from a market timing standpoint." They also do not enable people to accept a directional bias for any length of time. "I think that's where the frustration comes from," said Stockton, Fairlead Strategies' founder, and managing partner.

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In a Friday letter, Tom Lee, co-founder of Fundstrat Global Advisers, stated, "It has been a week of a grind."

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The S&P 500 touched a two-month high just shy of 4,170 on Tuesday, but then fell back on Wednesday and Thursday (see chart above). "One can never really tell what drives market direction on any given day, which is frustrating for investors," he wrote.

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Stocks made little gains on Friday but concluded the week with minor losses. The S&P 500 fell 0.1% for the week, while the Dow Jones Industrial Average was down 0.2% and the Nasdaq Composite fell 0.4%>

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Is the lack of follow-through an indication that the market rebound has peaked?

According to Stockton, the megacap tech-concentrated Nasdaq-100 has lost some impetus, but this hasn't filtered down to the S&P 500. It would need three consecutive weekly finishes above resistance at 4,155 to change the picture from bearish to positive.

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"It wouldn't necessarily mean we've launched into a one- or two-year bull cycle," she said, "but it would certainly improve the outlook for the next several months," and might serve as a counterweight to poor seasonals that begin in May.

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Some market observers perceive symptoms of tiredness, and the Cboe Volatility Index has fallen considerably below its long-term average of 20.

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"The market feels tired and perhaps a little complacent, given that the VIX keeps dripping lower," market expert Andrew Adams said in a note for Saut Strategy.

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"It has likely required quite a bit of buying power just to keep stocks propped up over the past few months amidst fundamental headwinds, so perhaps the bulls are, indeed, exhausted and need to catch their breath," he said.

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While there haven't been any obvious sell signals, Adams said the S&P 500's rise toward the 4,300 region – an area he expects to provide major resistance and a "perfect spot" for a reversal – would prompt him to "reel in" risk in a big way, a process he's already begun by reducing position sizes and closing some open positions on concerns the risk vs. reward setup is beginning to skew to the downside.

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Regarding the disappointing price movement, investors should prepare for a period of relative quiet, according to Mark Hackett, head investment analyst at Nationwide.

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In a recent letter, he labeled the present situation a "sandwich market," referring to the "last few years of unusual market activity from the pandemic and upcoming volatility from the 2024 presidential election."

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"Even with a debt ceiling debate on the horizon, which we know will be disruptive," he said, "we see this 6--9 months of relative calm and clarity as a buying opportunity."

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