Stocks Can't Rally, Won't Sink

06/14/2010 5:30 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Stocks refuse to give in, but they have been unable to move out of the danger zone either. The US stock market could still swing either way.

Take a look at the New York Stock Exchange Composite Index, for example. At the beginning of last week, the index fell through its February low, threatening to break through that level of support and turn a correction into something worse. But by the end of the week, the index had moved back above the February low and looked like it was trying to make a bottom.

You can see the same pattern—with perhaps a little more of a positive tilt—in the Nasdaq Composite Index. The Nasdaq has held above its February closing low of 2151, but just barely, and the index has whipped around between 2150 and 2300. Each sharp drop is followed by a sharp rally.

In the case of both indexes and the stock market as a whole, I’d say that this back and forth in a narrow range is a good thing—it’s building a base for a future advance—but only if the market can break out of the top of that range.

Otherwise, instead of becoming a base, this range will become resistance that will cap the next rally—from a lower price because absent a break to the upside, the longer-term trend is still downward.

Right now, we’ve got volatility with no direction as stocks try to decide whether to break or continue that downward trend.

News flow will, in the short term, determine whether stocks stay stuck in this range or break up or down. Wednesday and Thursday of this week will bring news with the potential power to end the stalemate.  (For more on this week’s lineup of economic news, see this post.)

Full disclosure: I don’t own shares in any company mentioned in this post.

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