A Range-Bound Market

stock marketThe battle between buyers and sellers has kept the major indexes range-bound in 2015.  The Dow and the S&P are struggling to make progress with the Dow continuing to back off each time it tips above 18,000 and the S&P is struggling to get above 2,100.  The Dow closed above 18,000 for the first time ever at the end of December and reached an all-time high of 18,200 in early March, but it closed the month of April at 17,840.  It has traded in a range of 17,000 to 18,000 for all of 2015.  This range did tighten some in April with the low being around 17,600 which is encouraging.  We expected the market to struggle to get above 18,000.  Round numbers and all-time highs form psychological barriers to investors, almost like a ceiling or brick wall.  Sellers push prices down committed to sell at the high, and then buyers come back to snatch up lower prices and push the market up.  This back and forth will continue until all the sellers are satisfied and buyers take over again or vice versa.  Triple-digit price swings in a day seem to be the norm for the Dow right now, but it is important to realize that 100 points on an index of 18,000 is barely ½ %.

Notably, the NASDAQ, after regaining its previous high of 5,000 in March, surged to an intra-day all-time high of 5,100 in the last week of April.  The old high of 5,048 was set in March of 2000.  It has been a long road back for this growth stock index, and when inflation is factored in, some would argue it is not even yet, but psychologically it is a boost to the overall market.  Also the Russell 2000 index which tracks small caps broke to a new high in April.  This action is positive for the stock market as growth stocks and small caps tend to lead the overall market.

The economic reports at the end of April were disappointing.  Productivity was flat as evidenced by an initial report of +0.2% GDP for the first quarter.  Consumer spending was positive, but it was cancelled out by declining exports due to the strong dollar.  The Fed reported in the last week of April that it expects productivity to resume a moderate pace in the second quarter and blamed the first quarter partially on the harsh winter.  The focus of investors appears to continue to be near zero short term interest rates and the timing of a change.  Investors hang on every word from Fed meetings and the last week of April was no exception.  An interest rate hike is still on the table and the timing is still ambiguous.

In the short term it is reasonable to expect a pull-back from current levels in the market, but long term the stock market remains in a positive trend.   When we look below the surface, intermediate and long term indicators show strength and the stock market continues to be the place to be.  A short term pull-back from current levels would offer a better entry for cash and then it is possible the market could resume its uptrend.

Knowing it is unwise to make assumptions or predictions about the stock market, we monitor it one day at a time and when the market changes, we change.

This report is a publication of Guelich Capital Management LLC, a registered investment advisor.  Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

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