Approach This Market With a Rifle, Not a Shotgun

by Sam Collins | August 27, 2013 2:56 am

The stock market was slammed in the final hour of trading on Monday following a statement from Secretary of State John Kerry that President Obama may be considering military action against Syria for the recent use of chemical weapons on civilians.

Low volume contributed to the volatility, and the late selling was attributed to short sales and protective strategies in advance of the possibility of an even broader sell-off.

At Monday’s close, the Dow Jones Industrial Average was off 64 points to 14,946, the S&P 500 fell 7 points to 1,657, and the Nasdaq broke even at 3,658. The NYSE traded 546 million shares and the Nasdaq crossed just 336 million. Decliners led advancers on both exchanges by about 1.3-to-1.

SPX Chart
Click to Enlarge

Chart Key[1]

The S&P 500 was holding its own, above its 50-day moving average, until the last hour when the sell-off hit almost all sectors. The selling also sent MACD slightly lower, cancelling the small upturn in its fast line noted last week.

The index now has clearly defined resistance lines that must be overcome if it is to move ahead in October. First, it must decisively overcome its 50-day moving average, now at 1,660, and then the resistance line at 1,676, which was its breakdown point on Aug. 15.

RUT Chart
Click to Enlarge

Small caps advanced slightly Monday but were victims of the volatility associated with the collision of low volume and negative headline news.

The current resistance for the Russell 2000 is at the confluence of its breakdown line and 20-day moving average at 1,042. Like the S&P 500, the Russell’s MACD has turned flat — not a bullish indication.

Conclusion: This week, the major indices may be just too difficult to trade since the low volume associated with the “dog days of summer” at the top of a major market advance can lead to extremely high volatility.

But that doesn’t mean that tradable opportunities don’t exist. Rather than swinging at the difficult-to-predict indices, it might be more profitable to concentrate on specific stocks like our Trade of the Day[2], 3D Systems (DDD[3]), or Microsoft (MSFT[4]). If you are bearish, short stocks in the homebuilding sector like Lennar (LEN[5]).

Using a “rifle approach” to trading can be more profitable than the “shotgun approach” in a highly charged, low-volume environment.

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. [Image]:
  2. Trade of the Day:
  3. DDD:
  4. MSFT:
  5. LEN:
  6. click here:
  7. click here:

Source URL:
Short URL: