Pisani: Why Stocks Are Off Highs

Stocks off their highs, and no surprise. Mid-afternoon Tuesday, and just like yesterday (and many other days), when there are modest gains on light volume...closing out positions usually means stocks drift lower.

We drifted higher throughout the day on very mixed news: China ordering banks definitively to lighten up on lending is a clear negative for global stocks; dollar near a five-month high; consumer confidence better but still weak; Case-Shiller Home Prices showing some slippage; earnings a balance between strong (Apple, Telllabs) and disappointing (Regions Financial, US Steel).

But professional traders have become largely momentum traders, and they don't like the momentum:

1) two days (Thursday and Friday) of very heavy volume and much higher volatility, with prices down across the board, followed by two days (Monday and Tuesday) of lighter volume, lower volatility and very modest gains. To traders, this means there is very little appetite for more buying, despite lower prices;

2) traders are trying to digest the congressional impact on future Fed independence—exactly how much horse trading is going on, a new and really troubling thought;

Add it all up, and for the moment traders are having a difficult time trying to figure out how to allocate resources.

One trader wrote to me, "My only thought right now is to sell the rallies...the old adage, the trend is your friend and the break last week changed the trend...from buy the dips to sell the rallies."

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