Quiescence

The entire second half of July 2016 for US equities can be summed up in the title to this post. Its very rare that the market will spend such an extended time locked within a <1 percent range. Its actually historic. The tight range, coming off the Brexit bounce, is most evident on the 30 minute chart below.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Looking at the daily chart, its easier to see just how narrow and tight the market range is; just look at the congestion! Its pretty remarkable!

S&P 500, daily bars

S&P 500, daily bars

Its not easy to interpret what it means technically for the next few months. However, the sluggishness does suggest that the market has more to digest, and may require deeper consolidation or correction in order to move substantially higher. The technical and fundamental obstacles to a further rally are many and varied, and I won’t go into them all here.

However, one item that we should consider is the fact that August has been the weakest month of the year since the 2008 Financial Crisis, falling an average of 6 percent. While this doesn’t mean we’re on the edge of a precipice, we should be ready for weakness. The late summer doldrums are typically a time to be cautious on equities before the fall buying season heralds the beginning of the strongest six month stretch of the year from November-April.

Whatever the case, traders should be ready for anything, with a break to the upside just a likely as a break to the downside. The only certainty is that this period of quiescence won’t last forever.

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