The Bears Could Make Their Presence Known Very Soon

August 31, 2006 · Print This Article

The holiday has lended a helping hand to the bulls. Thin volume and low volatility have been the norm this week, which is historically typical the week leading up to Labor Day weekend, no surprises here. I have to admit, even with the expected low volume, I did expect some weakness this week, but with the big boys out volume has been lower than usual and has caused some of the tightest intraday ranges in years.

In the past, intraday trading ranges this tight have led to short-term declines several days out. Couple this historical precedent with an overbought situation in the four major indices and the gap from 8/16 that has yet to close and the probability of a short-term decline increases significantly. The one factor that could throw a cog in the wheel for the bears is tomorrow’s seasonal bullishness. The trading day before the Labor Day has shown a overwhelming bias towards the bulls. After the holiday, I think we could be in store for a decent move to the downside over the short-term. Nothing is ever certain in the world of trading, but given the factors I have mentioned above and our proprietary indicators I have to side with the bears, at least for the next few days. I should also point out (as if I haven’t enough already) that September is historically the worst performing month for the market. Could we test the 1280 mark on the S&P. If the gap from 8/16 is to close, you can bet the market will move very close to that level.

RSI Wilder (5) for August 31, 2006