August Market Update

Online Trading Academy Article of the Week

by Brandon Wendell, Online Trading Academy

There has been much debate by the talking heads about whether the current bull-run in equities is coming to an end. Rather than debating the Fed’s potential “tapering” or other events, I choose to focus on what really matters, the charts.

The S&P 500 Weekly chart has been retreating from all time highs. Since we did not have supply overhead until out most recent drop, I am not willing to short until I see a defined downtrend and a retest of a supply zone. A break of the low 1600 demand zone could also trigger some panic.

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The 2007-2008 market crash was preceded by a drop in the Russell 2000 index. I am also watching this index for signs of weakness. The daily chart has broken from a head and shoulders and may be headed toward the demand at 956.

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If the daily demand doesn’t hold, the 938 weekly demand zone is old and tested and may only offer a small bounce to make a lower high before breaking to the 850 area.

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In my article from a couple of weeks ago, I suggested that without the supply zones to tell us the top, we may have to rely on some related securities hitting demand to signal reversals. I am closely watching the weekly supply zone on the 10 year note. If prices of the note hold the demand zone and rates hold supply, then the equity markets may weaken.

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So there is a lot to watch for the next few weeks in the markets. For investors and longer term traders, this indecision is a time to be cautious. Wait to enter in either direction until you have clarity. Deciding not to trade is a trading decision and may be the best way to protect your capital until you have more certainty in the markets.