How long will the tight trading range last?

August 30, 2006 · Print This Article

The market experienced one of its tightest trading ranges of the year today as the S&P moved back and forth within a four point range. The last few times the market traded in a range this tight it preceded a sharp directional move. Which direction will we go this time? Well, tomorrow is the last trading day before a very strong seasonal day, the last day of August. Historically, the last day of August/first day of September have been extremely bullish; however, the trading days following have been slightly weak. Furthermore, as I have repeated frequently over the past several posts, September is the weakest month for the market, so could the current overbought situation be telling us something. Over the short-term I am a little wary of taking any positions until the big boys move back into the market. Certainly the current overbought situation has me interested in a possible short-term contrarian move, but with low volume and strong seasonal bullishness only a few days away, I am a little hesitant at this point. I also expect to see a continuation of the low volume blues over the next few days. If the major indices move well-within the “very overbought” I admit I will be tempted to look at the short side of things, but only for the short-term. As much as I love the long holiday weekend that lies ahead, I am already looking forward to normal volume and volatility to move back into the market next week.

RSI Wilder (5) for August 30, 2006