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Trading Range

October 12, 2011 – 5:17 pm

The market continues its rally today on the back of increased optimism for a European rescue fund. Yesterday the Fed minutes release was postponed oddly until today. That news should be a market mover.

The S&P 500 has been trading in a range from 1100 to 1230 since the market bottomed in early August. We are currently trying to test the upper part of that range. It will be interesting to see if we can break out to the upside and what the market is indicating will come from policy makers.

The current chart pattern is considered consolidation, which likely means a strong move higher or lower when the ultimate breakout occurs. Until a clear pattern presents itself it would be prudent to stick with only strong stocks with healthy charts above support levels.

Alcoa kicked off earnings season last night with disappointing earnings, but the stock is only off mildly this morning. The current earnings season is the most uncertain we have had in recent memory. The backdrop of weak employment, European sovereign debt issues and China slowing makes for variables that are hard to quantify and work into earnings projections. I believe current earnings will be steady, but guidance may disappoint.

The variables in this market are many and volatility remains elevated, therefore it’s necessary to keep strong risk management and avoid excessive exposure on the long or short side. Keep focus on individual companies that have secular growth themes that should be able to shake off our economic malaise.

Good trading

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