Well, this is a bit of a disappointment. We have oil flying (up nearly 7 percent!), we have a weak dollar, we have China quiet all week, and we have a dovish Fed that traders believe have put some kind of floor under the market.
And this is all we get? The Dow Industrials up 40 points in a lackluster, average-volume session? In the past months, if oil would be up 7 percent and the dollar would be weak, we would have been up 200-250 points. What's wrong?
You can argue oil may be decoupling from the markets. Maybe. But the usual suspects that would benefit from a weak dollar are all up: energy, materials, industrials. In fact, there's more than four stocks advancing for every one declining.
So, why the crummy point action?
I think the problem is that the "V" rally is over.
Remember, we dropped big in January and February on fears of a recession. We rallied back when it became clear that: 1) a recession is highly unlikely, and 2) the Fed is so dovish that they are putting a "floor" under the markets.
So, a good part of the rally was predicated on a dovish Fed, which we now have. A more dovish Fed is now priced in to the market.
As for oil, if you believe $26 is the bottom — and as time goes by it is increasingly looking like that is the case — it is getting harder to get an equity reaction. The main worry was, where's the bottom?
The problem is not finding a bottom, it's how much upside there is to the market. Investors are not enthusiastic about buying at these levels because they're not at all sold on paying up with stocks near historic highs and no appreciable global growth outside the U.S.
What about earnings? We all know that earnings are down four consecutive quarters. Intuitively, this sounds like it is not good news, and I certainly agree.
But all weak earnings does is put a ceiling on stocks. And there is a ceiling: the markets topped out a year ago. Right?
So, we have a floor to the market, and we have a ceiling. What's this all mean?
Trading range. I said the market was a "solid hold" two weeks ago, and nothing I have seen since then has made me change my mind.
What would change this dynamic? If we could inch our way to a new high — 2,130 was the old historic high, way back in May 2015 — it would be a breakout from the range and might force some marginal money back in.
What could go wrong? We got an inkling this week: if investors come to believe that central bankers are toothless tigers. Haruhiko Kuroda, governor of the Bank of Japan, implied more quantitative easing was coming this week, and the yen rallied. Not good. Confidence eroding.
There's still confidence in ECB President Mario Draghi and Fed Chair Janet Yellen, as worry, but the cat is out of the bag, and worry about the limits of central bank intervention can now be added as a risk factor.