Making Use Of Quiet Time

Nothing new has appeared on the price action front. Low volume, barely trading more than 1 billion shares per day, combined with continued terrorist threats, war prospects between Pakistan and India, waning confidence in economic prospects, and the fact that it is the summer indicate that this price action will be evident for some time going forward. Naturally, some sort of a major crisis may shake things up for a short period, but overall, the US markets are not facing anything different that any other summer session.

The good news is that every trader can get through these periods. Remember, there are roughly 240 trading days each year, missing a few dozen is far more beneficial to your trading account than trying to hammer away at something that is not there to begin with. My suggestion is very simple: get your quick and assertive trading out of the way in the first hour, then look to manage longer-term positions the remainder of the day. I am using these quiet periods to hone my skills on longer-term trades on 5- and 15-minute bar charts. This part of my trading approach is not my bread-and-butter at present, but for me, it is the next phase on my evolution as a trader. These markets, while perhaps not the best for any time frame, allow you to learn.

As I have said many times, "What does not kill you, will only make you stronger."  If you can come away from these markets showing a profit, you will have refined your skills to such a level that any noticeable up-tick in volatility will allow you to profit handsomely.

The one thing that is still hanging over our market is the dollar. While it appears to be a bit oversold presently, the trend is clearly down. This is not a good sign going forward, as is reflected in the current performance of our markets. It will be vitally important going forward for this to correct itself in order to avoid further economic woes. Our capital markets are far too reliant on foreign capital, and a weak dollar jeopardizes that capital in-flow. A weak dollar also puts pressure on Japan from an export standpoint, as suddenly their goods are a bit pricier for us. Witness the feverish pace at which Japan has been intervening in the currency markets. Unfortunately, intervention never works in the long run.

I actually find the current market environment interesting. For the most part, traders ignore fundamental and political "noise," and while I agree that that stuff makes no difference when a trade lasts no more than a few minutes, it still has a huge impact on the big picture. With all of the events currently, there lies the real possibility of some very volatile markets ahead. However, if most of these issues simply pass, our markets seem due for a very quiet summer.

On a lighter note, with the World Cup officially kicked off last Friday, you can be sure that trading activity throughout Europe will be nonexistent. Since their markets typically do not "move" our markets, I don't expect a ripple effect, but lighter trading volume in London, Paris and Frankfurt, just adds one more negative. 

The quotes below are from an article in the weekend edition of The Financial Times:

"Trading volumes are expected to falter in the City of London, where dealers, typically men in their 20s, are likely to have one eye on the television for the 7.30 am matches."

"The British government, which has issued guidelines for employers, aims to practice what it preaches. Managers at the Department of Trade and Industry have been told not to schedule meetings during the England games, but to bring in televisions for staff."

"Richard Greenwood, a CEBR economist, said: "The effect will be negligible in the US, which does not have much interest in football."

"Italy could lose a net 0.75 percentage points of reduced staffing during the Italian matches. In Ireland, some employers have accepted the need to adjust working practices."

Looking at a trade from a longer-term perspective, take a look at the chart of KLA-Tencor (KLAC | Quote | Chart | News | PowerRating). To me it seems like a reasonable long provided you use a tight stop loss around $51. It is sitting on support (KTN) and appears oversold for the moment.

For me, the opening today will be about one thing, Tyco (TYC | Quote | Chart | News | PowerRating). The chairman is stepping down for "personal reasons" he says. However, an article in the paper over the weekend indicated that his tax returns were being audited. Regardless of the outcome, and frankly it does not matter, the stock will be very active on the opening and should offer some good trading setups. Many times when there is a big news item associated with the stock, technical levels become less important. Nonetheless, keep an eye on: 22.10, 21 and 20.60

Key Technical Numbers (futures):

Thought For The Week:

"Aspiring traders must perfect their methodology to the point where it becomes robotic. Once you reach that point, where reflexive actions take the place of thought, you then become a great trader."

As always, feel free to send me your comments and questions. See you in TradersWire.

Dave