After a significant correction of 17% from its April 29 high to its August 10 low, the market entered an unusually volatile sideways trading range. Numerous moves in both directions have been between the low around 10,700 on the Dow and the high around 11,500, about 800 points (7.5%).
The short-term trade has been to buy at the bottom of the range and sell short at the top of the range. Unfortunately, human nature being what it is, too many apparently were repeatedly whipsawed, encouraged by the rallies and buying at the top of the range believing the correction was over, and then selling in dismay at the bottom of the range.
But this latest short-term spike up has broken the major indexes above their 50-day moving averages. So does that mean it may also break the market out of the trading range to the upside – or are we about to see the 3rd quarter earnings reports keep the trading range going? Stay tuned.
It was only two weeks ago that the market seemed to be breaking out of the trading range to the downside when the major indexes closed below their August low.
Treasury bonds spiked up on safe haven appeal as the stock market was correcting to its August low. In the process they became very overbought above their 30-week m.a.
They have pulled back some during the stock market's rally of the last 7 days. But whether that will continue probably depends on whether the stock market remains in its volatile trading range by heading back down to the lower limit of the range or breaks out of the range to the upside.
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