S&P 500 (SPX) — Since mid-May, the index has been stuck in a trading range of roughly 1,040 to 1,130. On critical days like June 21 and Aug. 4, it looked like prices would almost surely break higher, only to reverse and catch buyers in a classic bull trap.

However, the bears fared no better. On numerous occasions, beginning with “flash crash” low of 1,066 on May 6, and the subsequent sell-offs of May 24, June 8, and the 2010 July 1 low at 1,111, it looked like the markets were in free fall. 

But the bears who jumped in on the short side found themselves in a trap of their own making, as prices reversed and shot higher with a determination that was destined to whip both bulls and bears into a summer of submission.

On Aug. 25, it again looked like the bears were about to wrestle buyers to the ground, but two classic “key reversals” at the important 1,040 line turned the near-term trend around as the bulls sprang a bear trap of their own. 

So, after the fur and hide have been bloodied for almost four months, the summer trading zone of 1,040 to 1,130 is still intact. The question of who is in charge of the market is up in the air. But the two key reversals last week have the bears on the short-term defense in a highly volatile, low-volume environment that usually provides a gift to traders.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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