After participating in this bloodsport since the mid-90s, I have discovered that markets rarely make u-turns during the summer. In other words, when a market has been exhibiting a certain behavioral pattern through the second quarter of the year, it won't suddenly jump the curb, attempting to carve out new ground in an attempt to revitalize itself while most serious traders and investors are enjoying the spoils of their success beneath sunshine and colorful umbrellas.
In the case of the market of 2014 we know the following from observing it through June:
1. It hates consistency, instead choosing a tedious route forward that involves taking two steps backward for every three steps forward.
2. It hates earnings season, ending January down and April flat, with both months possessing a tremendous amount of volatility.
The trend following crowd, who usually can't see past their left toe, are insisting that everything is peachy in suburbia, with plaid dresses, clean undergarments and colorful juice boxes signaling that the neighborhood is safe from prowlers, heathens and the disregarded. The simple act of a market being at or near its highs seems to have brought a tremendous amount of comfort that is not easily dissuaded through a single act of malice.
That act of malice occurred today in the form of a steep reversal, ominously led by the SOX and Russell. It is not simply an act of malice, however. It is a luminous signpost at the entrance to a highway signaling that the same dangers that have been existent during every commute home in 2014 still exist. A low volume summer won't change that. In fact, it will amplify it to the point of lavish discontent among those who have become comfortable sitting in the same spot.
For a market that hates consistency and has shown disdain for earnings season, there sure are a lot of investors thinking that this is a Lucky Charms commercial and a friendly Leprechaun will magically wave his wand, declaring everything around us "Magically Delicious."
This is Wall Street. Markets hate you. They want to kill you. Magical Leprechauns are certainly not allowed.
Be careful in July.
