Lay Low

Lay Low

By Deron Wagner | 25 August 2008

As we enter one of the traditionally slowest weeks of the year, the main stock market indexes continue to exhibit mixed signals. The Nasdaq Composite bounced off support of its intermediate-term uptrend line last week, but now must contend with resistance of its 200-day MA. It’s positive that the S&P 500 and Dow Jones Industrial Average both reclaimed their 20 and 50-day moving averages, but a lot of overhead supply remains from earlier in the month. With the major indices essentially in "no man’s land," expect continued chop and whippy price action. Unfortunately, the anticipated indecision may be compounded by the fact that turnover will likely remain well below average levels until the Labor Day holiday has passed.

We probably won’t see the real direction of the market’s next move until traders and investors begin returning to their desks in the beginning of next month. Until then, it makes sense to take it easy with regard to entering new positions. Realize that the best traders are typically out of the market more than they’re in the market, meaning they carefully pick their opportunities to strike, while laying low the rest of the time. This prevents them from churning their accounts and giving back profits during the more challenging periods. [[As Warren Buffett puts it, "They wait for that fat pitch!": normxxx]] The coming week is probably one of those times to lay low. Simply setting stops on existing positions and taking a one-week break from trading is certainly not a bad idea. Rather than trading through this slow period, consider using the extra time to thoroughly scan the market for new opportunities in September. Then, you too will be fresh and ready to strike when the moment is right!

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Normxxx    
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