“Pointing out any negatives for stocks over the past 9 months has been an aggravating exercise in futility. Whatever is happening to drive the indexes higher [insert favorite excuse here], it continues unabated. For the first time in a long time, long-term breadth is negative, it’s been persisting for months, and it’s even worse on the Nasdaq. And yet buyers return to drive the indexes immediately to new highs, with the Nasdaq among the best performers on Monday. This is a heckuva mixed-up market, where nothing but blindly buying seems to work.” Sentiment Trader – 8/24/2021
I thought that statement summed up the current situation well this morning. As I had suspected, we have a range day thus far. Range days are hard to trade – and are best left to professionals. Limit order traders tend to do the best – but you have to know what you are doing and have speedy, timely data. I don’t lose significant sums often, but it is usually in a range day when I do.
For now, the range is best framed by 4479 or so on the low side (also the measured move from the current breakdown) and the 4488 peak we put in this morning. After the strong recovery from Thursday’s intraday low, a range day was in the cards.
But there is also the problem illustrated on the weekly chart above. We are at the top of the current channel on the daily and weekly charts. Either we have to ride the top channel line like a vine wrapped around it. That can be miserable – because it tends to be mostly range trading. This year, we have had a lot of that kind of price action after the big two or three-day trend moves end. Think of it as a trading range with a slight, positive slope. But, as I said before, trading ranges can be tough.
Alternatively, we can break into a new channel above the current one. It happens, especially in a blow-off top. So I won’t exclude the possibility – though the monthly chart already pushed the outide of the 3-ATR bands. We saw that in 2017, coming off the last nominal four-year cycle low.
I am also duly mindful that nobody alive has experienced a Fed like we have now, and there is no historical precedent either. Maybe it works, maybe it doesn’t. But trading is not the best place to be an adventurous trail blazer. I prefer familiar ground.
This is why I prefer to day trade, for now, leaving the swing trading to follow the next major low. We are at the historical upper limit of the number of trading days since the S&P 500 has visited the 200-day line. The line currently sits at 4022, roughly 10% below current levels. Why not a brief visit? 10% is a normal correction – nothing to be alarmed about. But who knows? One can only recognize the risks at hand – it will take a catalyst to bring the risks forward.
Like my recent dream (see View From The Top Down yesterday), when the crash came I said to myself – “of course, it was so obvious, how could anyone have missed it?”
Are we the proverbial frogs in the boiling water?
A.F. Thornton