Summer Doldrums are Back!

July 31, 2006 · Print This Article

Today’s price action exhibited the typical low-volume trading that we are accustomed to seeing during the summer months. Coming of one of the best weeks of the year a consolidation Monday is too be expected. Today’s action would normally be seen as a positive day as the market basically finished the day by only giving up fraction of last week’s advance, however, the market is currently exhibiting some bearish tendencies that should be noted. For one, the S&P (SPY) and Dow (DIA) are still overbought while the tech-heavy Nasdaq 100 (QQQQ) and Russell (IWM) are quickly approaching that status. Tomorrow is the first day of the month and historically, a bullish seasonal day. Suprisingly though the first day of August is historically a flat day. If we do indeed test the 1280 mark I have mentioned over the past few days it is my opinion that we could have a tough time moving through and holding this level. The reason I state this is because a move through the 1280 would bring the S&P (and most likely the Dow) into “very overbought” territory which normally does not bode well for sustainable moves to the upside over the short-term. Like I said it is only my opinion so take it for what it is worth. Another bearish indicator is the 5 straight days of higher highs on the S&P, which recently has been fairly bearish going forward, at least for the short-term. Furthermore, the second and third trading days of August have showed a slight bearishness historically. As I always state seasonality, in most cases, should never be the only reason to place a trade. But, if we take the seasonal tendencies and couple them with the current state of the market the combinition increases the probability of a successful short to intermediate-term trade. If we look at the current market and its overbought state coupled with the seasonal weakness that lies ahead.. well..I think we can put two and two together and come up with some possible short-term opportunities. Have a great night!

RSI Wilder (5) for July 31, 2006