“Too much action with too little intent makes for wasteful exertion of energy and the confusion between movement and progress.”
On Wednesday, much of the business media were consumed with the Dow Jones Industrial Average breaking the 22,000 level for the first time. Such events make for convenient headlines, but they aren’t particularly important or even very positive. All the indices have been making new highs for years now and there is nothing significant about this level. Indeed, it can be argued that it is just an indication that the DJIA is overbought and doesn’t offer a good entry point right now.
There are several things about the market that are far more significant than the Dow setting a record. First is the reaction to earnings season. Overall, the results have been very strong. There are more beats than normal and guidance has been good.
Part of the reason the results have been better than expected is the impact of a weaker dollar. The dollar has been in a steep downtrend since December and that is helping multinationals, which benefit as their products are cheaper to foreign buyers. This situation has resulted in twice as many big-cap stocks beating estimates than small-caps. Small-caps have not done as well this earning season and that is reflected in the Russell 2000.
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Although there have been good earnings, the market’s response has not been particularly positive. There have been more “sell the news” reactions than at any time since about 2014. Action Alerts PLUS charity portfolio holdings Facebook Inc. (FB) and Apple Inc. (AAPL) both posted great numbers and moved higher, but both stocks triggered a bout of selling in the overall market. The market bounced quickly, but there hasn’t been any upside.
This lack of positive response to good earnings is reflected in the closing prices of the S&P 500. Over the last 11 days the S&P 500 has had a closing range of 2470 to 2478. That is movement of just 0.3%, which makes you wonder if the market is even open.
We had similar action in August 2016, with the indices barely budging for about three weeks. It wasn’t quite this flat, but there were some records for lack of movement. The bulls were confident that the action eventually would resolve itself to the upside, but instead it led to a slow downtrend that finally bottomed on Election Day in November.
So, we have limited movement in the S&P 500, an inclination toward “sell the news” and outperformance by big-caps due to the weak dollar. Those are the themes at play and none of them are making trading particularly easy.
This morning we have very flat action again as we digest economic news and a slew of earnings reports from mostly secondary companies. If you are looking for some strong action, you will need to look very hard.
This article originally appeared at 07:41 ET on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.
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