The market typically does well the week before a major holiday and Labor Day is no exception.  It certainly was an odd week of trading with jeckyl and hyde moves on Tuesday and Wednesday ultimately resulting in another "preholiday" positive gain, pushing the major indices further above their downward trendlines.  The technical action over the past couple weeks has improved but not to the point where I’m comfortable sounding the all clear alarm.  We can’t take much away from a volatile, light volume  trading week and keep in mind that the major indices are fast approaching big overhead resistance areas.  Until we begin testing key support and resistance levels with normal trading volumes, it’s best to remain largely in cash.  The market has come too far, too fast to initiate new long positions and the technical action is a bit too strong to pursue short positions aggressively.  I’ll call it no man’s land.

Let’s have a look at the Nasdaq.  When I say that the major indices have improved technically I’m specifically referring to the breach of their downward trend lines.  There has been no trouble with this area of resistance as you can see in the Nasdaq in the chart below.  However, big overhead resistance looms around the 50 day moving average and previous highs around 2625.  There is some room for the Nasdaq to push higher, but I think this bounce will be exhausted soon.

The S&P has shown some strength too by clearing the downward trend line (in black) but key resistance areas are on the horizon at the 50 day moving average and then around the August highs of 1500.  The downward  trend line may prove to be a new area of support so look for the S&P holding above this line as an indication of underlying strength. 

The Dow just cleared its downward trend line on Friday, so it’s lagging a bit.  Notice it hit resistance right at the 50 day moving average on Friday and retreated.. a sign that the push higher may be running out of gas.  If the Dow can clear Friday’s high we could very well see another couple hundred points higher to the next level of resistance around 13700.  I would be might tempted to short the heck out of the market if it gets anywhere close to this level next week.

 

 

 ::: Model Portfolio Update :::

The Model Portfolio sits largely in cash (70%) and will likely remain so probably through September while this correction plays out.  It remains a somewhat irrational market and difficult to read from both a fundamental and technical perspective making it tough to profit from either side of the market.  I’m continue to hold a couple long term core positions in Google and Cisco and am playing a few small short positions.  The year to date performance has edged up in the past couple weeks to 9.2%, still more than double the S&P500.