What To Do In A Range-Bound Market

April 11, 2003
Dave Landry

On Friday, the Nasdaq gapped sharply higher on the open but
quickly found its high and began to sell off hard. It stabilized by mid-day and
then chopped sideways for the remainder of the day.

This action has it closing poorly and suggests that it
could test the bottom of its recent trading range/ 200- & 50-day moving averages.

The S&P also reversed after a stronger start. This
action has it stalling right at its 200-day moving average (it reminds me of the
Thermos, “how do it know?”*) .

The VIX hit multi-month lows again. It’s now stretched 10% away
from its 10-day moving average. This action sets up CVR-III and CVR III-Modified
sell signals.

So what do we do? The fact that the indices reversed after
a rally attempt is disappointing. It suggests that we are stuck in trading
range. And, the action in the VIX suggests that we could challenge the bottom of
that range. On the bright side, some stocks such as selected health care
plans (see the ATH example from Thursday), did OK on Friday. Although
this does exemplify why you should stick with the strongest stocks in the
strongest sectors, it’s really nothing to write home about. Continue to keep it
light until the trading range shows signs of resolving itself.

Looking to potential setups, Advance Auto Parts
(
AAP |
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PowerRating),
mentioned Thursday night, still looks like it has the potential to resume its
uptrend out of a pullback. However, considering the present environment, you
might want to wait for upside confirmation in both the stock and the overall
market.