On the surface, trading volume is down and the summer doldrums are here. But don’t be fooled. A big move is setting up. You can see it in the steady squeezing of the Bollinger Bands around the NYSE Advance Decline Line (NYAD), the S&P 500 Index (^SPX), and the 10-year Treasury yield, observes Joe Duarte, editor of Joe’s Weekender Portfolio.
Underlying expectations of Federal Reserve rate cuts and a rise in liquidity could explain the steadiness of the stock market, as in the NYAD and the SPX holding above 5,850. The fly in the ointment is what it’s been for the past seven months – the Washington fiscal/political games and the increasingly perilous geopolitical situation.
From a trading standpoint it pays to be ready for just about anything. Here are some useful rules:
- Be ready for a big move – up or down
- Stay calm and focused
- Follow the status of the market’s liquidity closely
- Keep abreast of the market’s sentiment
- Consider taking profits on positions that are extended and thus vulnerable to profit taking
- If a position is stopped out, move on
Meanwhile, there is one important sector ETF to monitor as the current situation unfolds – the VanEck Semiconductor ETF (SMH)
SMH is the central cog in technology. It remains resilient. So far, SMH remains above the 20-day and 200-day moving averages. A more bullish view is that SMH has found support at $260.
