Stocks wrapped up the week on a positive note last Friday, as the major indices recovered some of the previous day's steep losses. After moving higher on the open, the main stock market indexes drifted sideways, in a tight range, throughout the rest of the day. The Nasdaq Composite reclaimed more than half of last Thursday's loss by gaining 1.3%. The advances in the S&P 500 and Dow Jones Industrial Average were less impressive; the benchmark indexes climbed 0.4% and 0.2% respectively. The small-cap Russell 2000 rallied 1.1% and the S&P Midcap 400 ticked 0.4% higher. Bullish divergence caused the Nasdaq to close near its best level of the day, but the rest of the major indices settled near the middle of their intraday ranges.
Turnover backed off substantially, indicating traders were hesitant to hold a bunch of long positions over the weekend. In both the NYSE and Nasdaq, total volume declined 20% below the previous day's levels. Trading in both exchanges also fell to below average levels. Advancing volume in the Nasdaq exceeded declining volume by a respectable margin of 2 to 1. The adv/dec volume ratio in the NYSE was flat.
((K's comments : all these simply mean that there are no clear selling or buying signals))
As for the broad market, we are neutral on the near-term. The corrective action on July 24 was healthy, and stocks recovered a bit of their gains the following day. However, the major indices, with the exception of the Russell 2000, still remain firmly entrenched in primary, long-term downtrends. The S&P 500 and Dow Jones Industrial Average both fell back below their 20-day EMAs (see pink circle)as well.
This all means the near-term trends could be choppy and indecisive, which is why we(referring to the folks who contributed this commentaries) are neutral. As for the intermediate-term, it's looking more and more likely that the major indices will not be violating their July lows anytime soon. Just don't forget that we're still in a bear market. Large, unexpected gap downs are common in such an environment. Overall, odds probably favor the long side of the market right now, but stay alert and cautious until the major indices prove they can move above last week's highs. Buying with reduced share size on all new positions is a great way to sensibly reduce risk.
((K's comments : or one can stay sidelined until clearer buy or sell signals occur))
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