Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
“Uneventful” might be the best word to describe yesterday’s trading session. After the wild swings in the first half of August, market participants might have forgotten that it is August — until today. It now officially feels like the second half of August has begun, and people are trying to sneak away to the beach as much as they can. The last two weeks of August are traditionally a time when trading volume dries up (much like the last two weeks in December), news flow slows, and volatility calms for a little while.
In terms of the S&P 500 Index, it closed up by a smidge, and after trying to conquer the 1,200 level (blue horizontal line) again, failed by closing below it and leaving a doji candle behind on the day. “Indecision days” are marked by so-called doji candles where the opening and closing prices are nearly the same, which at the 1,200 level is not unexpected.
Also, given the previous two weeks’ volatility, I could now envision a period of two to three weeks of trading in a range between 1,175 and 1,225. That 50-point range, however, still works out to be a 4.25% swing if measured from 1,175.
The S&P 500 is still in oversold territory, although much less so. Note the slow stochatics indicator is not yet in overbought territory.
Yesterday’s underperformance of the technology sector was one of the more notable stories. The sector as measured by the Technology Select Sector SPDR (NYSE:XLK) may have reached some meaningful resistance over the past few days that is mirrored by the 2,200 resistance level of the Nasdaq 100. As I discuss in today’s Trade of the Day, however, given that the oversold levels in the broader market haven’t completely dissipated, it might be a little too early to short the technology sector.
The doji candle I noted earlier in the S&P 500 was prominent across sector charts yesterday. Even the defensive utility sector, which rallied back sharply after the early August sell-off, yesterday left a doji candle on the daily chart of the Utilities Select Sector SPDR (NYSE:XLU), making us wait another day to find out where it wants to head next.
The sector I am watching the closest is the financial sector. The banks in particular are oversold and undervalued here by many fundamental metrics, which isn’t to say they cannot trade lower, but it does increase the likelihood that they outperform on a relative basis going forward.
My favorite is JPMorgan Chase (NYSE:JPM), and the below chart shows a wedge-like formation on its chart. A breakout in either direction can be traded, especially to the upside. I am watching this stock (and the entire sector) closely, because when it gets better bid again, the S&P 500 may finally be able to overcome the crucial 1,200 level again for more than just 30 minutes.
My theme for the next two to three weeks: Expect less, be quick to react, and enjoy the backend of the summer as much as possible.
