Don’t Let the Market Catch You Off Guard This Month

by Serge Berger | September 4, 2012 2:17 am

Serge Berger is the head trader and investment strategist for The Steady Trader[1]. Sign up for his free weekly newsletter here[2].

When all was said and done for the month of August, the S&P 500 rose about 1.5%, but at its peak was up about 3.45% for the month. The Russell 2000 index also closed the month well off its intra-month highs, yet the Nasdaq 100, relatively speaking, pushed higher right through the end. But that was mainly due to Apple (NASDAQ:AAPL[3]).

Although Friday was a whacky session thanks to Fed Chairman Ben Bernanke, it didn’t alter the charts all that much, and as such, from a technical point of view there isn’t much to add to what I wrote on Friday morning[4].

As we just finished a month, let’s zoom out on the charts a little more and look at them on a weekly basis (weekly bars on the chart).

SPX Chart

From that point of view, the S&P 500 has continually made a series of higher lows and even some higher highs since the autumn of 2011. Of course, the significant higher high remains to be made and would be accomplished should the index close above the 1,425 area on a daily, and preferably weekly, basis. The Relative Strength Index (RSI) — an oscillator measuring price momentum — still shows room higher into the overbought territory.

To calm the nerves of some readers, let me say that the above is simply the technical point of view, and while interesting to use as a reference point, should not be considered the Holy Grail of analysis. Structural and fundamental analyses should also be applied.

I reiterate my stand from Friday[5]: I favor 1,440 as the next upside target on the S&P 500, but any move below 1,390 with much force would get me to flip short. I currently have very little invested and am mostly sitting in cash, so my long-side bets are very limited.

Why such hesitancy? Well, August has been a quiet month and while some welcomed time at the beach (compared to last year’s nuclear fireworks in August) there are also major news items ahead this week. Any of them could easily lead the S&P 500 and other indices to break out of their boring average true ranges of late.

To be clear, that is far from saying that I see markets really tanking in the weeks ahead — although they could. I am merely saying that volatility is likely to increase, and therefore, it is likely the average daily market ranges will increase. Intraday swings may increase and could quickly catch anyone with tight stop-loss orders or an unprepared mind for such moves off guard.

Whether or not it will be a September to remember remains to be seen, but instead of leaning out of any windows I prefer to enter September with a cash-heavy, lean-and-mean portfolio, ready to deploy cash long or short when the time is right.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[6].

For a list of this week’s economic reports due out, click here[7].

  1. The Steady Trader:
  2. free weekly newsletter here:
  3. AAPL:
  4. what I wrote on Friday morning:
  5. my stand from Friday:
  6. click here:
  7. click here:

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