Since August 5, the indices have formed a wide trading range. The bottom of the range is around 2825 of the S&P 500 and has been tested three times in August. The top of the range is around the 50-day simple moving average at around 2945 and has been tested several times in recent weeks.
This trading range setup is particularly interesting in front of a speech by Fed Chairman Jerome Powell at Jackson Hole on Friday morning. It is expected that Powell will set the stage for a rate cut at the next meeting, but the more-important issue will be whether he backs off on the comments at the last meeting that these cuts are just a mid-course correction rather than the start of a new program of systematic cuts.
If there are hints that the Fed is backing off from the 'mid-course correction' idea, the chances that the indices break higher out of the trading range are quite good. If it is unclear where the Fed is heading -- which is more likely -- then the bottom of the trading range will be in play.
Many market players will be positioning for a move today, which means that the action will likely be mixed and random. There is nothing much happening on China trade right now and the good retail earnings have mostly been absorbed by the market now.
Many bears believe that the market is on the brink of a significant decline as a weak economy takes hold and the impotency of central banks becomes clear. The bulls are still confident that a continuous flood of cheap cash will keep the market running like it has for so long.
My game plan is to wait and see how the price action develops. Currently, the indications are positive. The strong reports from retailers helped to battle the growing arguments about recession, but the yield curve continues to invert and the concerns about a bubble in bonds are growing again. The strength in bonds is causing more worry about equities than it has in a very long time.
I continue to be positioned with a high level of cash and am staying selective with trades in individual stocks. There are some things working, but it is important to keep timeframes short and to maintain tight stops.
Many expert pundits are going to predict what the market does in reaction to Powell, but the best thing you can do is stay very vigilant and be ready to react as the action develops.