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State of the Stock Market - 8/31/10

|Includes: SPDR S&P 500 Trust ETF (SPY)

We saw another day of volatile action today on Wall Street, but unfortunately the trend of going nowhere continued as the markets ended the day flat.   The day started out poorly with the S&P and Nasdaq once again testing the bottom levels of their current range, but those held once again and stocks bounced sharply mid-morning.   They reached their highs soon after, moving sideways through lunch, falling back after lunch, and bouncing slightly into the close.   The Nasdaq closed slightly lower and the S&P was flat overall, with volume coming in higher than yesterday's totals.  

Technically, we just keep forming this range here and what is interesting to me is that we are either testing the top or bottom of the range almost every single day for the last two weeks, and as that happens, that range becomes stronger and stronger.   It seems like it will take a lot of effort for the bulls to get us over 1067-1069 and 2155-2160, and it will take a lot of effort for the bears to get us below 1040 and 2100.  

One thing to watch over the next few days is that the 9 day moving average has moved below the top of this range and could provide an early clue as whether we will breakout or breakdown from this range.   For the Nasdaq, it is currently around 2144 and for the S&P, it is currently around 1060.   A move above this level for me would mean a breakout above the top of this range is likely.   Another test and failure of this moving average would mean we are much more likely to breakdown from this range.

Charts from Telechart, Courtesy of Worden Brothers, Inc.

Since we haven't really gone anywhere the past week or so, there really isn't much to do as a swing trader.   I would rather wait for the breakout or breakdown to come rather than guess which one will occur.   So for me, cash is good at this moment and I'll be ready to go when the range is broken.   I am still expecting lower prices and am leaning that way, but we'll see what happens.   Take care and good luck Wednesday.