Tight Trading Range Continues

August 25, 2006 · Print This Article

Volatility has been absolutely horrible over the past week. Volume has declined tremendously and will most likely continue until the end of summer holiday passes. This makes setups very difficult over the short-term. However, tight-trading ranges are usually followed by sharp directional moves.

I have stated the following over the last few days, but I feel it is well worth repeating. I still think the market will move lower over the next few days testing the 1280 area (approximately) which should close the gap from last Wednesday and should move the S&P (and most likely the other major indices) into an oversold position. Seasonal weakness is upon and should last a few more days until the seasonally bullish transition from the end to the beginning of the month occurs. This phenomenon happens during most months and is rather strong during the beginning of September.

As I always state, trading seasonality, in most cases, should not be the only reason to place a trade. However, if coupled with other technical indicators it can be a wonderful tool that can give you that added punch you might need to increase the probability of a trade. We talk about seasonal factors in our newsletter and often use seasonal factors to enhance our trading in one of our favorite options strategies the ETF Extremes. We will also be offering more seasonal info on our site over the next month or so.

RSI Wilder (5) for August 25, 2006