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We just returned from College Station, Texas, home of Texas A
& M University after the annual junior tennis fest/test of strength and endurance called the Texas Grand Slam. That's where most of the top 600 or so tennis players aged 12-18 hope to spend a week every June. If you make it the whole week you get a bucket load of ranking points and a lot more bragging rights. We made it to Tuesday, a respectable showing, since the tournament starts on Friday night.
As usual, this scribe keeps his eyes and ears open, looking for clues as to what the tennis crowd is thinking and doing. Given the demographic involved, it's not a bad place to pick up interesting information from lawyers, hedge fund types, and other folks who often have access to interesting insights and information. We also spend time speaking with hotel staffers, who are often better sources of information than others in the city.
Last year, College Station was down on its luck, suffering from a declining economy and a general malaise. This year, though, things were different. Aside from the closing of one large supermarket, an Albertson's, on the city's main strip, there was a fair amount of both highway repair work and commercial construction. Compared to other years, there were also a fair amount of students taking summer courses throughout the university. Even Barnum & Bailey decided to make as tour stop at the university's basketball arena. The college itself is getting a major expansion and facelift.
So we started digging around and found out, from our hotel folks, that weekends are very busy now, with sporting events, both during football season, and into the summer. During the week, business travel remains steady, with occasional bursts from energy companies that are establishing a presence in the area. College Station is neighbor to Bryan, Texas, the county seat of Brazos county, which has a portion of the Eagle Ford shale formation. The Bryan/College Station area has a fair amount of mature oil wells. But its presence in the Eagle Ford shale is attracting the attention of natural gas exploration. There were at least two large drilling operations visible from highway 190 that weren't there last year.
And the impact of the industry's presence is clear on the town, where restaurants are once again full and there is traffic on the roads, especially in comparison to last year's quite depressing visit.
We checked in with a hedge fund fellow we know and he told us that the regulatory burden on the financial services industry is choking them now. He says that while many of the current regulations are still being implemented, new ones are being drafted, further limiting companies' ability to do business.
He also told us that one of the reasons that banks aren't lending money to businesses is that they are buying municipal bonds by the truckload, at yields, he says, that are extremel low. He says that he can't understand that, and hasn't found anyone who can tell him why banks are doing this.
He says that the complaints in his sector about the economy haven't changed. In fact, he told us that they are getting louder.
In contrast to other trips to similar tournaments, as we've chronicled here many times, few people were talking about anything but tennis. The silence, with regard to the economy, was palpable. We found that quite interesting to be sure. See our Market Moves section below for our report on the casual dining sector.
The Markets: Tight Trading Makes For Difficult Environment
The stock market is moving up and down in a tight trading range with the 200-day moving average serving as a sling shot pivot point in both directions, up and down. It seems as if at some point some kind of decision should come along, but that's not very comforting at this point.
The situation in Europe remains volatile, as does the U.S. election and the notion that the U.S. economy remains vulnerable to both internal and external threats. The upshot is what we're seeing, tight trading in a narrow range.
Chart Courtesy of StockCharts.com
The S & P 500 (SPX) is hugging its its 200-day moving average. One thing is important here, though. The Bollinger Bands, the green envelopes that surround the 20-day moving average (dashed line) are tightening. That means that the market is like a coiled spring that will, at some point, break out of the current trading range. When that break out, or break down finally comes, it could be a very decisive move. The longer it takes for the market to make a decision, the bigger the move that comes is likely to be.
Chart Courtesy of StockCharts.com
Small stocks (RUT) are still lagging the large stocks, tagging the 200-day line but failing to get above it on 6-11 and 6-12. The Nasdaq Advance Decline line (NAAD) turned negative on Monday, but turned up on Tuesday. The problem, though, is that this indicator, like the market is range bound. When it makes its move, it will also likely be very decisive.
Chart Courtesy of StockCharts.com
The Nasdaq Hi-Lo line (NAHL) had been flattening out. On Tuesday it moved lower. This is worrisome. The problem is that these day to day gyrations remain basically within a defined range, making it difficult to make longer term trading decisions.
Chart Courtesy of StockCharts.com
Conclusion
The market can't seem to make up its mind about which direction to take. The external variables, Europe, the election, and the economy, remain unresolved. This may not change in the foreseeable future, which means that this market could be very difficult to trade for quite a while still.
We are turning slightly positive on a trading basis but aren't putting large sums to work yet.
Keep your cash ready to deploy and remain patient.
Trading Plan Review
The market is now trading in a very unpredictable pattern. There is no reason to make any kind of large commitment to either the long or short side at this point. This is one of those times when we have to wait and see what happens.
Investors who follow our trading models should be holding large amounts of cash at this point but have put some money to work lately on the long side.
Our energy portfolio is long. Our health care portfolio is in cash.
We are in cash in gold market. We are short U.S. Treasury bonds.
When you understand the big picture, the next step is how to survive and profit from what lies ahead. That's why we recommend: "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
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