This will be the last vacation week of the summer and volume will be non-existent.
Volume last week was minimal with an average of only 5.2 billion shares a day with only 4.8 billion on Friday. Next week should be worse unless there is a big market move. Without any upside catalysts on the calendar, any moves could be lower and the volume would come from sell stops being hit.
We are almost out of August but September is typically the more volatile of the two months. Second half market lows are typically made in September and the first two weeks of October. The month of October is known as the bear killer month because the declines end in the first two weeks.
While there is no guarantee typical historical trends will repeat, there is always the risk. The major indexes have been in a minor decline for the last two weeks or four weeks in the case of the Nasdaq. There is nothing keeping them from continuing that decline other than a refusal to sell off. They have had multiple opportunities to accelerate to the downside and each was bought.
Just last week the markets saw a short squeeze on Tuesday that lifted them from multi-week lows but it was a one-day wonder. The indexes held their gains the rest of the week but it was only because the daily declines were minimal. There was no rush to sell the spike and no material selling when the short squeeze ended.
Investors are simply not selling. That could change at any time but so far they are holding their positions. The risk for this week is the big cap tech stocks. The majority of them are holding right on support and any minor selling could cause that support to break and push the Nasdaq off the cliff.
I am showing the Facebook chart as an example but AMZN, GOOG, NFLX, PCLN all have similar charts. Apple is the only stock that is well above support.
The Nasdaq has solid resistance just above 6,300 and weak support at 6,200. The likely target on any major decline will be 6,100.
The S&P is fighting resistance at 2,450 that stopped the short squeeze on Tuesday and held the index back the rest of the week. The 2,400 level is the likely target on any sustained selling. That would only be a 3.3% decline from the highs so it would be far from a major market event.
The Dow was the strongest of all the indexes but it fell sharply the prior week and then failed to fully recover last week. The current resistance is 21,900 followed by 22,000. There is light support at 21,600 with stronger support at 21,500 and 21,300.
The Russell 2000 has pulled back from a critical support test at 1340-1350 but the rebound has been minimal. The Russell has declined the most since the July market highs. The biotech stocks have been major contributors to the Russell gains. A break under 1,340 targets 1,150.
The number and quality of earnings continues to decline. Only 7 S&P companies report this week and that will bring the total to 498 and the end of the Q2 cycle. Best Buy, Ctrip.com and Costco are the big names for the week.
This is payroll week and unless there is a big miss in either direction, the numbers are not likely to matter. The Fed is on course to begin tapering QE at the September FOMC meeting and it would take a huge change in the economic picture to move them from their path. The GDP is not expected to be a major deviation from the original 2.6% growth for Q2.
The national ISM Manufacturing Index on Friday is expected to decline only slightly and it is not likely to be a market mover.
Nothing is expected to be a market mover this week. With the majority of traders and portfolio managers trying to cram in one last week of vacation before Labor Day, the volume is going to be very weak. Any buy/sell programs could manipulate the market but normal volume is expected to produce a dormant market.
The exception would be a sudden break of support on the Nasdaq big caps that could trigger a volume surge to the downside.
There is no valid reason to add new positions ahead of the normal September volatility. There will be a buying opportunity in our future.
Enter passively, exit aggressively!
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