Dangerous Market Conditions Ahead – Don’t Make This Mistake

Posted 9:30 AM ET - This morning we learned that 209,000 jobs were added during the month of July. That was a little better-than-expected, but not enough to move the needle. Stocks are compressing near the all-time high and we are headed into a news vacuum. I'm going to keep my comments brief during the next few weeks. The market will be trapped in a range and the price action will be light and choppy. This is a low probability trading environment and I urge you to keep your powder dry. Earnings season has been excellent, but good news is priced in. The strongest companies post early in the cycle and the excitement will wane. The FOMC statement was hawkish last week and the Fed plans to tighten in September. They are in recess until then. Politicians are going to leave "the swamp" for holiday. The workload (healthcare reform, tax reform and the debt ceiling) will be heavy when they return. Economic releases will come to a screeching halt after today. Traders know that the doldrums lie ahead. They will take time off and trading volume will hit its lowest level of the year. Swing traders need to patiently wait. In a few weeks we should see signs of profit-taking and there will be an opportunity on the short side. Day traders need to reduce their allocation and trade count. I will be more active on days when the market opens lower. The market is in an uptrend and it is near the all-time high (small tailwind). Pullbacks make it easier to spot relative strength and my entry points are much better. I will be less active on flat opens and I might not trade when the market gaps higher. This "dead spot" will last a couple of weeks and the action will gradually pick up. We won't see normal trading conditions for a month. This is a very dangerous time for traders. I've seen many novices piss their capital away out of boredom. The wiggles and jiggles the next few weeks will be random and this is a low probability trading environment. Keep your powder dry. . .

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