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Stock Market Shakes Off Chinese Devaluation And Closes In Middle Of 4 Month Trading Range

Stock Market Insights and Ideas by Marc Chaikin

The S&P 500 Index closed on Friday at 2,091.54 up 0.7% on the week. The very strong market advance on Monday gave way to a 2-day correction when China surprised the market by devaluing their currency by 1.9%. The Wednesday lows held above short-term support levels and by Friday the S&P 500 Index was up on the week.

As we said last week: "These are the dog days of summer, with many market participants away from their desks, and therefore stock prices can be pushed around more easily."

The stock market bounced up from an oversold condition on both a daily and a weekly basis. The positive Chaikin Money Flow on Wednesday when the market traded down to our lower volatility bands is encouraging but doesn't change the likelihood of staying within the very narrow 4% sideways range between 2,044 and 2,132.

We should assume that the bull market is alive and well as long as support in the 2,040-2,050 area on the S&P 500 Index holds. If we close below 2,044 there is an even stronger band of support between 1,978 and 2,015.

Are There Seasonal Patterns We Should Know About?

The market is typically weak in the September/October time frame. This makes a breakout above 2,132 more difficult as it has to happen very soon. As we have said this will require a spark of some kind, especially since 2nd quarter earnings didn't succeed in propelling the stock market through its overhead resistance at 2,130.

A caution flag has been raised by the recent underperformance of market leading Health Care stocks like Anthem Health (NYSE:ANTM), Cigna (NYSE:CI), Mylan NV (NASDAQ:MYL) and Boston Scientific (NYSE:BSX). Whether this is just profit-taking and group rotation remains to be seen. Protect your profits in Health Care stocks like this where bullish Chaikin Power Gauge ratings for 12 months have been the precursor of gains of 100% or more.

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