Monday, August 15, 2011

Markets float ahead of Merkel/Sarkozy meeting

The markets are, for the time being, beginning to normalize. This is a welcome change from the huge, almost untradable, volatility and whip-saws we've seen over the past two weeks.

The major indices have had sizeable bounces from the pivot low I called out last week. There has also been a drastic decrease in volume (from over 600m shares on the SPY last week to just under 120m currently) and this has helped to lifted the markets as well.

The markets are trading mostly sideways today as traders wait for the outcome of a meeting between the leaders of Germany and France tomorrow. This is a difficult trade as most stocks are well off their lows and any negative reaction could cause a pullback. On the other hand, volume is light and a positive reaction could easily lift prices.

Technically, the SPY is floating up within a larger bear wedge pattern. Notice the big down-move followed by an up-move in the chart below. The dotted blue lines will be good resistance, if we make it there.

Most professional traders have been trading lightly or not at all these past weeks. This is the prudent way to approach this market as it is still fragile and prone to whips and "aftershocks". As a technical trader, I step aside when macro-economic and geopolitical events take centre stage. This is why my twitter and blog have been much less active lately.

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