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Low volume contributed to the volatility, and the late selling was attributed to short sales and protective strategies in advance of the possibility of an even broader sell-off.
At Monday’s close, the Dow Jones Industrial Average was off 64 points to 14,946, the S&P 500 fell 7 points to 1,657, and the Nasdaq broke even at 3,658. The NYSE traded 546 million shares and the Nasdaq crossed just 336 million. Decliners led advancers on both exchanges by about 1.3-to-1.
The S&P 500 was holding its own, above its 50-day moving average, until the last hour when the sell-off hit almost all sectors. The selling also sent MACD slightly lower, cancelling the small upturn in its fast line noted last week.
The index now has clearly defined resistance lines that must be overcome if it is to move ahead in October. First, it must decisively overcome its 50-day moving average, now at 1,660, and then the resistance line at 1,676, which was its breakdown point on Aug. 15.
Small caps advanced slightly Monday but were victims of the volatility associated with the collision of low volume and negative headline news.
The current resistance for the Russell 2000 is at the confluence of its breakdown line and 20-day moving average at 1,042. Like the S&P 500, the Russell’s MACD has turned flat — not a bullish indication.
Conclusion: This week, the major indices may be just too difficult to trade since the low volume associated with the “dog days of summer” at the top of a major market advance can lead to extremely high volatility.
But that doesn’t mean that tradable opportunities don’t exist. Rather than swinging at the difficult-to-predict indices, it might be more profitable to concentrate on specific stocks like our Trade of the Day, 3D Systems (DDD), or Microsoft (MSFT). If you are bearish, short stocks in the homebuilding sector like Lennar (LEN).
Using a “rifle approach” to trading can be more profitable than the “shotgun approach” in a highly charged, low-volume environment.
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