For the past month or so the markets have settled into a trading range. For example, the S&P 500 (chart) has essentially traded between 112o and 1200 since August 7th. This has included some of the most stunning daily swings the markets have ever endured.  What typically happens next after a stock or an index trades in a range for an extended period of time, is a breakout to either side of the range. Right now the S&P 500 (chart) is in the middle of its range.

So what does it normally take to breakout of a trading range and how can you trade this? Typically there must be some type of catalyst to occur in order for a range bound equity or index to breakout. This catalyst may come out of Europe and their current debt crisis, or it could come from the upcoming 3rd quarter earnings reporting season? Whatever the catalyst is, it’s imminent and should provide the required conditions for the breakout. Once the S&P 500 or any other range bound index or equity breaks significantly above the upper or lower part of its trading range with volume, that’s usually the time to take positions. In the case of the S&P 500 (chart), it appears a strong break above 122o or a breakdown below 1100 would do it.

Of course history or technical analysis does not always repeat itself, but in today’s age of computerized trading and the plethora of market technicans that follow this type of analysis, one can make a strong case.

Have a great day.

~George

Even the most seasoned Wall Street veterans are astonished by the volatility in the marketplace. Yet again this week , enormous swings occurred in the Dow (chart) which finished lower today by over 30o points. The Nasdaq (chart) on the day lost 61.15 points, the S&P 500 (chart) -31.67 points and the Russell 2000 (chart) -20.96.

Today you can blame the crisis of confidence on Europe. Renewed fears of Greece defaulting on its debt and the ECB’s Stark resigning at year end was enough to jolt the global markets. Negative headlines are abound and it’s no wonder the (VIX) (chart) also known as the fear gauge, spiked to over 40 today as well.  When the VIX spikes the way it has over the past month and continues to remain elevated, this historically is an indication of a near term bottom being put in. Add the incessant negative headlines that we are all exposed to daily, and that too historically is a sign of a bottoming process in the markets.

Don’t misunderstand me for the problems here and abroad are very real, and true leadership needs to emerge once and for all to address the global crisis we find ourselves in. However, it is times like these that do indeed create some of the best opportunities for investors, so long as you have the patience and fortitude to ride through one of the most volatile markets in recent history. Good luck to all.

Have a great weekend 🙂

~George

The markets kicked off September pretty much the same way the entire summer has gone and that is with the bears in control. The Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart) all lost over 3% in the first two trading days of the month. This was a direct result of the ISM manufacturing report and the August employment report which came in much weaker than expected, ramping up fears that the economy is heading back into recession.

Fast forward to today and across the pond the European markets have sold off sharply, as their debt crisis continues to weigh heavily on the minds of investors and consumers alike. All in all, it appears that we are heading into a very volatile week ahead and we will see if our markets can continue to hold key technical support zones that were visited in August. I know this may sound like a broken record, but if you choose to go long this market during these extremely volatile times, make sure that you scale in very slowly and that you stay as diverse as possible for what may look cheap now, could become even more of a bargain as the month progresses.

Good luck to all.

~George

August 2011 should go down as one of the most volatile months for stocks in recent memory. For example, for the first time in its history, the Dow (chart) experienced four consecutive days of 400 point swings. The Dow Jones Industrial Average also had a trading range of over 1400 points in August. In addition, the VIX index (chart) also referred to as the fear gauge soared over 50% on the month before retracing and is still at elevated levels. This is truly astonishing volatility that is rarely seen. For the month, the Dow (chart) fell 4.4%, the S&P 500 (chart) -5.7% and the Nasdaq (chart) lost 6.4%. Since the highs in May, these indices have corrected by approximately 10%.

Welcome September! Historically, September tends to be one of the weakest months if not the weakest month for equities. But after this summer’s sell-off, I am not so sure that this month will comply with history. What may help the markets in September is that throughout the August bear raid, the major averages managed to hold critical support levels, which included a four day rally at the end of the month. That said, the economy and the jobs market are going to have to show some signs of recovery in order for the fear and unprecedented volatility in this marketplace to abate. We had a decent start this morning with the ISM manufacturing index reporting a value of 50.6, which was better than expected. However, this is just slightly above contraction. Tomorrow all eyes will be watching for the key jobs report which comes out before the market opens. Good luck to all.

Have a great day.

~George

In last weekend’s blog the question remained, “Have we reached a bottom?” Well folks this week might of provided the answer. Despite yesterday’s sell-off,  all of the key indices posted impressive gains on the week. In fact, this week marked the best market performance in the past two months. A welcomed sight for all of the bulls out there. On the week, the Dow Jones Industrial Average (chart) gained 4.32%, the Nasdaq (chart) +5.89%, the S&P 500 (chart) + 4.74% and the Russell 2000 (chart) +6.15%. Notwithstanding these inspiring gains, volatility remains quite high.

So now the question is, was this a technical bounce or is the fear, panic and the concern of a recession still in play? Well if you are reading the daily headlines and are listening to the plethora of pundits, we are not out of the woods yet. However, the markets seemingly liked what Chairman Bernanke had to say at today’s annual economic conference in Jackson Hole, Wyoming. Mr. Bernanke indicated that the Federal Reserve is prepared to provide additional support should the economy really begin to stall, and in the same breath, he indicated that he expects growth to pick up in the second half.

I think for growth to pick up, consumers will have to regain the confidence they had earlier this year, which may not occur unless we get real job growth in this country. For that to take place we are going to need meaningful leadership and less politics out of Washington. Is that possible? I hope that our nation’s leaders are paying close attention to the most recent Presidential and Congressional approval ratings for Americans have had enough. Hopefully this will get them moving in an effective way.

Have a good weekend 🙂

~George

Not since the market crash of 2008/2009 has the market had such a sharp sell-off as we have witnessed over the past month. In addition, over the past month or so there has been mutual fund outflows not seen since March of 2009 (which happened to be the market bottom). This typically means the retail investor is throwing in the towel. Also, not since World War II has the 10 year treasury yield been below 2% in a desperate flight to safety. I can go on and on, but the point I am trying to make is there are a lot of indicators out there which are historical signs of a bottom being put in. However, it’s important to remember that markets that are being driven by emotion, fear and panic can indeed continue to act irrational and trade lower before reversing.

So far for the month of August the Dow (chart) is down approximately 11%, the S&P 500 (chart) -13%, the Nasdaq (chart) -15% and the small cap index Russell 2000 (chart) is down a breathtaking 18%. Now folks if this isn’t fear and panic running rampant, I don’t know what is. That said, it will certainly take a lot of courage and fortitude to step in front of this freight train, but in reviewing some of the historical market metrics that are currently in play, this may be the time to consider dipping your toes in. However, if you choose to enter this type of market environment, one of the golden rules of trading and investing is to scale in very small and build your selected positions over time. Of course anyone considering investing in these markets or any market for that matter, should always first consult with investment professionals.

Have a great weekend 🙂

~George

After a relatively calm week, today markets around the world from Japan to London tumbled. Incessant fear out of Europe was in part the culprit and weak economic data out this morning here in the U.S. has our markets down about 5% at mid-day. Currently, the Dow (chart) is down about 475 points, the S&P (chart) 500 down roughly 57 points and the Nasdaq (chart) is off around 126 points.

Oversold conditions remain, however,volatility appears to be back in full force. Check out the fear index (VIX) (chart) surging 30% today. Be careful when navigating these waters, it appears that we are going to be in this pattern for a while.

~George

For the first time in its 115 year history, the Dow Jones Industrial Average moved more than 400 points for four consecutive trading days this past Monday through Thursday. The volatility that these markets have been experiencing is truly remarkable. With that said and all things considered, the key indices on the week finished modestly lower. For the week the Dow (chart) gave up 1.5%, the Nasdaq (chart) – 1%, the S&P 500 (chart) – 1.7% and the Russell 2000 (chart) on the week finished lower by 2.4%. At certain points this week, these indexes were close to being down 10%. That is how much fear and panic had set in.

Stocks are certainly in a correction phase and some pundits believe that the bottom was reached this past Monday. I am not so brave as to call a bottom here, however, I still believe that the market remains oversold and this 2-day rally we are in just may continue through next week. Personally,  I will need to see a lot less volatility in order to feel confident that some degree of normalcy will come back into the markets. The problem is there doesn’t appear to be a short term catalyst in sight that can alleviate the investor fear that is running rampant right now. I will continue to be patient and allow things to settle down before I feel confident about these markets.

Thank goodness the weekend is here. I think we all need a breather 🙂

~George

Here is how the Dow Jones Industrial Average (chart) has closed over the past five trading sessions; Thursday August 4th, down 512.76, Friday August 5th, up 60.93, Monday August 8th, down 634.76, Tuesday August 9th, up 429.92 and today the Dow (chart) finished down a staggering 519.83 points. These are unprecedented market swings and are incredibly difficult for any investor to endure.

This market is panicked, highly emotional and without question going through additional margin call selling. When you are in this type of market environment,  probably one of the best things to do is absolutely nothing, especially if your stop loss targets have not been hit. The key indices are still in a very oversold state according to the Relative Strength Index (RSI), however, it is important to remember that stocks or indexes can remain oversold or overbought for extended periods of time. Let’s hope cooler heads prevail and some type of market normalcy can come back over the coming days. Good luck to all.

~George

A massive sell-off occurred across the board today in one of the steepest market declines since the 2008 credit crisis. On the day, the Dow (chart) lost 5.5%, the Nasdaq (chart) -6.9%, the S&P 500 (chart) -6.7% and the Russell 2000 (chart) lost -8.9%. This is not a typo my friends, panic and fear has a firm grip on the markets right now. To confirm this all you have to look at is the VIX index (chart) also known as the fear gauge, which soared an unprecedented 50% today.

I think it’s fair to say that the markets are overwhelmingly oversold and the fear factor is overdone. However, from individual investors to institutional investors, no one seemingly cares for the metrics or logic, for investors are selling indiscriminately now and will ask questions later. Which takes me back to the hysteria in the 2008/2009 crash and prior market crashes in that when the fear subsides and the forced selling ends, opportunities do present themselves. For now it’s probably best to sit on the sidelines and let the fear, panic and margin call selling abate.

~George