The Good Thing About This Trading Range
On the heels
of a decent afternoon Fed rally yesterday, it sure would have been
nice to get some follow-through today. Unfortunately, it just wasn’t in the
cards and the market suffered another day of “mild†distribution. After closing
above their 50-day moving averages yesterday, the S&P fell below it again today,
and the NASDAQ barely held above it. It appears the bounce may be ending and
the indices may be headed back down to test support levels once again.Â
Will support hold again? Maybe. The news isn’t all bad. While the US market
is acting sick, several foreign markets have actually been hitting fresh highs.Â
With the current global economy, market correlation is higher than ever. Anyone
who reads Mark Boucher knows that he frequently talks of plurality of markets,
and is constantly looking abroad, as well as at commodities and bonds to find
clues so that he may best anticipate market movements. Of those Mark mentioned
in his column last week, India, Thailand, and the emerging markets index (EEM)
all hit new highs today.
Canada,
Chile and South Africa are some others also hitting new highs.
Divergences among global markets will always exist, but just as you wouldn’t
expect to see the Nasdaq gain 30%, while the S&P loses 30%, the same can be said
for U.S. vs. international equity markets. If recent action in foreign markets
is any indication, then the US may be able to avoid a deep correction of the
March — June rally. On the other hand, a break of the support near 960 in the
S&P and 1600 in the Nasdaq would likely cause many foreign markets some damage
as well.
What’s this all mean? The plan remains pretty much the same. The longer the
trading range lasts, the more violent the break of the range is likely to be.Â
Currently, there is ample evidence to create a solid argument in either
direction. Let the market tell you what to do. Be ready to play it either
direction (don’t ignore the short side), and even within the trading range
continue to take your signals, but with a little more caution until the
direction is clear.
Enjoy the rest of the week and good luck with your trading.
Â
Rob
Hanna