Stocks test the top of their range

09/08/2009 11:29 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Nice of the stock market to cooperate while I was on vacation.

Stocks didn't move substantially higher and they didn't move substantially lower while I was away from my desk in the last weeks of August. The market was what I'd call range bound for most of that time, stuck in between the August 17 low of 980 on the Standard & Poor's 500 stock index and the August 28 intraday high of 1032.

Markets get range bound for lots of reasons. Right now I'd say it's because stocks have moved up so strongly--way ahead of any economic recovery--and investors aren't certain that they want to buy more at current prices.

And because September is historically the worst month of the year for stocks and October with its history of crashes and plunges is the scariest so no one really wants to crawl too far out on a limb.

Markets don't stay range bound forever, of course. They finally resolve into moves up or down.

Right now stocks are testing the top of the range. On September 8 the S&P 500 closed just 7 points short of its August 28 intraday high. If stocks can break above and then close above that level that would probably be enough to bring more cash into the market from the sidelines. (Technical levels tend to create their own momentum.)

Similarly a failure to go through the August 28 high would be disheartening enough to send stocks back to retest of the lows near 980. And that would keep the market range bound for a while longer yet.

No matter which way stocks move in the short term, I don't expect a strong trend to develop until we get some new fundamental news on the economy or company profits.

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