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Tactical Perspective, Equities: Aug. 17

One of the typical elements of price action is that markets will tend to find support and resistance levels (basically high water marks left by the convictions of either bulls or bears) and then test just beyond those levels.  Sometimes a test below support will meet with renewed selling as trapped longs panic out of their positions and the market will melt down into a strong downtrend.  At other times, we can actually see good up-moves off of these levels as trapped shorts scramble to cover when the market comes back above the support level.

Either scenario sets up a good trading environment for short term trades, but yesterday’s move in the US Equities Market was a disappointment to both bulls and bears.  The market opened with a failed test below recent support, but the reaction was muted as the opening volatility subsided and the market essentially chopped sideways for the rest of the session.  This was a good reminder that we are still in August and low volume, low volatility and no order flow continue to dominate this difficult trading environment.

Our advice to all market participants is completely unchanged.  Longer-term investors should carefully monitor leading sectors and individual market leaders for signs of strength or serious weakness, and basically avoid doing anything until more clarity emerges.  Short-term traders should trade lightly and avoid making commitments until real order flow comes into the market.  We do see a slight bullish bias to today’s session, but this is a very small edge in what is now a very random market.

Disclosure: "no positions"