(By Rich Bieglmeier) Stocks struggled to hold on to early gains after a strong Retail Sales report. Consumers stepped up big time in July, and Tuesday's results were hot, coming in 0.8% growth when the street expected 0.3%.
If consumers continue to loosen the purse strings, it would absolutely act as a shot of adrenaline for the economy and the equity indexes, thump, thump.
But today's action was just no good. Investors better see it as an uh, oh moment when good news comes and stocks don't respond. In iStock's 20 years of experience, indifference to unquestionably good news is an unidentified object speeding towards the bow – you better be ready to react.
On the chart, we see downhill action in volume, although today was better than yesterday, while the indexes have a rounding appearance. The last thing we want to see is an upside down bowl shape for the indexes while volume takes on a normal bowl shape, higher on the edges and droops in the middle.
It's called, appropriately enough, a rounding top. We aren't calling it yet, and certainly hope it doesn't materialize, but we can't ignore what our eyes see. As the pattern develops or disintegrates, we'll keep you posted.
In the meantime, the trend is still up, and investors should remember a cardinal rule of trading, don't short an uptrend or buy a downtrend. If you are uncomfortable, one of my mentor's favorite sayings comes to mind, "it's better to be out of the market wishing you were in than in the market wishing you were out." So, if you feel a little queasy, take some money off the table, preferably a gain matched with a loss.
Typically, on Wednesdays, iStock mentions some short-term trading ideas. As you can imagine, with the market on low heat, not much is popping. However, all is not lost, we found two kernels.
Since we are waiting for the market to do something, iStock will suggest waiting for the ideas to surpass a specific price before taking any action. Of course, only do so if it's appropriate and after you discuss it with a pro.
Estee Lauder Companies Inc. (EL) if it passes $60.13 with a $64 price target and a stop loss if closes below $58.
The Goldman Sachs Group, Inc. (GS) above $105.63 with a $112.50 target and stop loss for a close under $102.
That's it for today. We'll see you tomorrow with our thoughts on Thursday's Jobless Claims and review of Q2 earnings to date.