Back in the Range

 | Oct 07, 2011 | 4:45 PM EDT  | Comments
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A quick squeeze and fade in the final hour of trading made it clear that the high-frequency traders are in control of this market, but it still was quite a good week for the bulls. After breaking to new lows for the year on Monday and struggling most of the day on Tuesday, we reversed big in the final hour of trading and ran straight up for two more days.

The move into resistance set the stage for a sell-the-news reaction to a solid monthly jobs report, and downgrades of Italian and Spanish debt by the credit rating agency Fitch helped matters along. The end result was that we were saved from another leg down and are right back in the middle of the trading range that has been in place since early August.

Since the trading range began, reversal days like today have tended to see downside momentum build a bit, so it is going to be interesting to see if the pattern continues next week.

The big picture remains quite problematic. The S&P 500 has not even been able to reclaim its 50-day simple moving average yet, and the trend is still to the downside. There was a chorus of calls that this time that we really have seen the lows for the year, but overall sentiment remains quite gloomy, and individual traders are at the point where they are engaging in gallows humor.

The one characteristic of this market that sticks out the most to me right now is how little stock-picking is taking place. Setups and pattern aren't working, and stocks tend to trade in highly correlated fashion. If you want to trade, you have to be focused on shorter-term timing so you can deal with the sort of action we had in the final hour of trading today.

I'm still optimistic that this action will eventually provide a good setup for some positive action into the end of the year, but I expect conditions to remain quite choppy until earnings start to hit in another week or so. After that, I'll be looking for some better trending action, but if Europe doesn't gain some clarity soon, it is going to be rocky.

Have a great weekend, and I'll see you on Monday.

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