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S&P 500: Go with the Flow and Take it Slow

S&P 500: Go with the Flow and Take it Slow

What’s inside:

  • The S&P 500 is climbing at a snail’s pace
  • The trend is up until we see sharp price action to the downside
  • Don’t force the issue, volatility will return and trading conditions will improve

Exactly one month ago today the S&P 500 was 30 handles lower, so in 20 trading days the market has tacked on an average of 1.5 handles per day. Exciting stuff. It kind of is if you enjoy seeing history unfold before your eyes, like the two-week range we had not along ago which was about 91 basis points in depth.

There are pockets of opportunity in other markets – FX, commodities, indices not based on US stocks – but very little going on in the U.S. markets at this time. Volatility is hovering around the lowest levels seen in recent years, and won’t take much to push it down to levels which also measure historically low – a 9 handle from the 11 we’re at now would achieve this. Very possible as we head through the dog days of summer.

The Nasdaq 100, while volatility is still very low, has at least moved. That can happen when you have an index which is dominated by a handful of constituents reporting better than expected earnings. Earnings season is pretty much over, so the NDX will have to rely on general risk sentiment for further gains. The 100 has risen ~5% in the time the S&P 500 has been able to snail its way to about 1.5%. The Dow is up less than 1% over the same period of time.

OK, so we have established the fact trading in US indices is about as boring as it can get, so what does it mean? It means a couple of things. Keep your trade size small and be very selective. Volatility will return and we want to have our powder dry and head 'right' when it does. We are moving towards one of the more, if not the most, exciting times of the year. It also means, don't let your guard down if you are staying involved. Expect the unexpected.

In the S&P we have seen a fake-out breakout, a fake-out breakdown, but this most recent NFP-fueled breakout seems to be for real, for now. The benefit of the doubt is to the upside until we see something meaningful which suggests we should turn bearish. A break back inside the range, below 2174, may fray the nerves of those who recently bought and spur selling. But until we see support break and a sharp down day, we will, again, continue to go with the flow and take it slow. Top-side resistance is penciled in as the gradually ascending trend-line in place since the middle of July.

Slow trading makes for a good time to re-evaluate and further educate. Check out one of our trading guides designed to help do just that. Also, if you haven’t read already, read through – “Traits of Successful Traders”.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.