The past few weeks in the market have been somewhat choppy, to say the least. I must admit that there has to be some concern that the stock market could not hold the recent break above their April high. It reminds me of the 2007 all time high in the Dow. Please look at a chart of the Dow from back in 2007:
See how we briefly broke above the July high in October, only to quickly fall right back below it. Well, we all know what happened after that!
Although I will not go as far as to say that same scenario is unfolding now, it does put recent moves into some context. Please look at a recent chart of the Dow:
Sure looks familiar doesn’t it? Regardless, since breaking back below he April high, the Dow seems to be stuck in a very tight range between the 11,200/250 resistance and the 11K support. The S&P equivalents would be 1200 resistance and 1175 support. At some point, the markets will have to break one of theses levels, either higher or lower. Keep tabs on them for some insight into the next market move.
The Tale of the Tape: After breaking back below the highs from April, the stock market seems to be congesting within a very tight range. The break one way or the other should dictate the next significant move in the market. Trading within this tight range could be very choppy and difficult. Don’t be afraid to sit it out and wait for the breakout or breakdown. When the break comes, you will be better able to decide what side of the trade you want to be on, trade accordingly and with higher probability.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT