Conviction Is Low, On Both Sides Of The Table

In the grand scheme of things, it can’t be too terribly surprising. After all, it is the dog days of summer. Traders aren’t terribly interested, and somewhat distracted by all the other things that require attention as August starts to molt into September. It would be surprising if the market was throwing out serious fireworks.

All the same, between Wednesday’s action and Thursday’s action, if you were hoping the market collective would tip its hand as to its true undertow, you’ve got to be disappointed in little conviction traders have here… in either direction.

Yes, the third reversal in three days is a clue to that end, though not necessarily the big one we want to focus on. Arguably more important is the shape of Wednesday’s bar for the S&P 500, and the subsequent shape of Thursday’s bar for the index.

That’s what the image below is – a daily chart of the past few weeks for the S&P 500. Wednesday’s bar is marked with a yellow arrow, and Thursday’s trading is marked with a pink one. Notice for both bars what happened, or more specifically, what didn’t happen. In each case, the most active traders pared back on their activity before the closing bell rang. On Wednesday the sellers were gung-ho early on, but the index partially bounced back in the latter part of the day to bring the market back from its lows. On Thursday’s bar, the bulls were charging, but decided to be considerably less bullish later on, letting the index close below its high.

In both cases, it’s a sign that traders weren’t entirely convinced they could even afford to carry their trades overnight into the next day’s session.

In a different context, and under different circumstances, these ‘hammer’ shaped bars would serve is pivot points, out of one trend and into another in the opposite direction. We don’t have any of that context or the proper circumstances though. We just have a bunch of people who don’t know what to think, extending a phase of indecision that actually took shape in late July.