Since early August the key indexes have essentially been in a 10% or so trading range; the Dow Jones Industrial Average (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart). This has created a variety of entry and exit points for traders depending on the trading style of the individual. This type of market can also create lots of head fakes and headaches should you attempt to time a range bound market. Which leads me to highlight two of the more popular technical indicators that certain market technicians, program trading and even institutional investors utilize, and they are, the Relative Strength Index (RSI) and the Moving Averages. Put simply, the RSI typically indicates whether or not a given index or equity is either overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater is an overbought condition and the 30 value or lower is an oversold condition. Pertaining to the moving averages, the 50-day and the more closely gauged 200-day moving average are the key levels that certain market technicians and program traders act on.
In analyzing the four key indices, currently all of them are trading well below their respective 200-day and also below their 50-day moving averages. That said, these levels may act as resistance until the markets can break out of their current range. Furthermore, in looking at the Relative Strength Index, the key indices all appear to be around the 50 level, which is no where near an overbought or oversold condition.
To sum this up, for me personally in order to act I look for extreme indicators of market conditions, which are not currently present. This could change and most probably will once a market moving catalyst presents itself. What that catalyst will be, time will tell. I suspect that it will come out of Europe or the upcoming 3rd quarter earnings reporting season.
Have a good afternoon.