Technical Talk: In absence of direction, focus on stock selection

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The comments below were provided by Kevin Lane of Fusion IQ.

Over the last few trading sessions the S&P 500 has had its upside progress capped by the 200-day moving average (1,126 area) and its downside moves supported by the 100-day moving aver­age (1,115).

Trading volumes remain very tepid and aligned with the typical summer slowdown as we approach mid to latter August and the deep dog days of summer. It is hard to imagine the market mustering a lot of headway with trading volume so light. The one catalyst that could create a squeeze effect would be an ad­ditional stimulus package dished out by the government. At this point it still remains tough to take any big bets with regard to long/short asset allocation tilt.

We believe active and nimble trading strategies on select names remain the best way to take opportunistic shots at return un­til the rest of the market commits more to a direction with in­creased volume.

S&P 500 Index with trend lines (Daily Chart)

As seen above the S&P 500 continues to stall in the area of its 200-day moving average (red lines). The In­dex remains in an up-channel having sold off to its up-trend line (1,109 area – lower green line) again and bouncing back. This is the fourth test of that minor up-trend line in recent trading. The number of suc­cessful tests of this line suggests it is a valid trend line. Thus any violation of it would be a negative.

S&P 500 Index 31-day chart with trend lines

As seen above on the 31-day chart the S&P 500 is holding support in the 1,110 to 1,103 area (sol­id and dotted orange line). This line marks the difference between the summer rally holding or coming apart.

Source: Kevin Lane, Fusion IQ, August 9, 2010.

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