Market In A Very Tight Range – Trading Volumes Are Low – Fade the Early Moves

Posted 9:40 AM ET - Monday the market try to break through resistance at SPY $217.50. That move failed and the downside was tested. This morning we are seeing some follow-through selling. The S&P 500 has had a 20 point range in the last three weeks and prices are wrapped tightly. Trading volumes are very low and the news will dry up after this week. ISM services and ADP will be posted tomorrow. These releases should have a good market impact. ISM services should be a little better-than-expected and ADP will be steady at 180K. The jobs report on Friday will come in better than the three-month average of 147,000. Anything around the 200,000 level or higher will take a toll as August unfolds. Traders will fear a September rate hike. I'm expecting a light round of profit-taking in a few weeks. Japan announced details of its next stimulus program and the results were underwhelming. Credit concerns will start to surface this month. Brazil is in crisis mode and the world will see how dire the situation is in the next few weeks. I am buying BZQ this week and it is a longer-term position. I am finding some attractive shorts. Stocks that have hit resistance and that have traded in a tight range are ideal shorting candidates when they break the lower end of the range. Ideally they are well above the 100-day and 200-day moving averages. This gives them plenty of downside room. On days when the market opens more than five S&P points higher, I will look for relative weakness and I will short the stocks. On days when the market opens lower, I will find stocks with relative strength and I will go long. Fading the early move will be fruitful as long as we stay in this tight trading range. Extra caution needs to be used when buying an early dip. One of these days support will fail and we will have a buyer boycott. The S&P 500 will fall 20 points on light volume. You don’t want to get caught on the wrong side of this move. I have been urging you to exit all overnight longs. As long as we are in the range (SPY $215.75 - $217.75) assume that the market will chop back and forth. When we test the low end of the range for the day and the momentum stalls, we are likely to reverse course and head higher. Look for quiet choppy trading today. Use SPY $215.75 and $217.75 as your guide. . .

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