Whether you”re looking at key commodities, indexes, or sectors, the ranges towards the end of last week were very narrow. These tight ranges after a big directional move occurred (lower in this case), suggest the market is taking a wait and see approach and that supply and demand is pretty much in balance. The recent trend has favored supply but with the S&P500 trading in its tightest back-to-back range Thursday and Friday since March, the market appears to be searching for a reason for supply to ramp up again. Whether the reason will be technical or fundamental yet to be seen, but we””ll see focus on analyzing what we know best, and that””s price.
Like SPX, oil and copper have also traded in very tight back-to-back ranges. Unlike SPX though, these 2 commodities recently did the same thing in late April/early May. Following those tight ranges oil and copper both made a big move to the downside. The opposite directional move was made at the beginning of the year following tight ranges as they both soared higher. The take away is that tightly ranged trading days in these 2 commodities have preceded bigger moves.
The last space we”re going to pay close attention to early in the week is technology and financials. Both XLK & XLF experienced their least volatile days of the month on Friday. The low to high end ranges on all of these indicators should serve as your first buy or short signal to start the week. You might even be served well being especially aggressive if oil breaks below its low from Friday but the other indicators do not. We”d like to align ourselves closest with the move oil is making as it happens. On the contrary, we”d be apt to short a further bounce higher that is only led by one of these groups breaking the top of their recent ranges, and not all of them together.
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