Slow and Steady is the Pace

The slow progress of the broad markets continued on Monday as low volume consolidation completed its sixth day of trading. In a market that has not been normal since 2007 it is just part of the process. To some investors that is an eternity, but some investors seem content to wait on the central banks around the world to provide more stimulus. The good news – bad news that was driving the market went on vacation along with volatility. If you had gone on a 10 day cruise in the Caribbean you wouldn’t have missed a thing.

There is still a theme of ‘get out of the markets now’ in the headlines. For some reason the theme to “Jaws” is playing in the background. We are after all approaching the 2008 highs, and 2009 post correction highs. The economic data is anemic, volume is low, retail data isn’t impressive, and the retail investor has left the market. They are all valid opinions unto themselves, but we still have to let the market play out. Besides a narrow range consolidation at this level has just as much opportunity to break higher as to break down. The challenge is to let this unfold and the drivers be determined versus pontificating what will happen. Wall Street is full of individuals who believe they can predict the future. Stay the course and see how the movie ends.

There are plenty of pattern set ups as we discussed in my Research Notes last night. Some of them will play out on the upside as the future unfolds and others will fail. Never make assumptions on direction just follow your discipline, and have a defined strategy for each position you take.

Today we have some economic data in the retail sector with the July Sales Report. No surprises expected, but the sector could use a catalyst to break from the current trading range. XRT, SPDR Retail ETF has been trading sideways and attempting to break above the $60.55 level of resistance. Look for a upside follow through today or a retraction lower in the consolidation pattern. The sector continues to have solid winners like Gap Inc which broke higher at $30. Nordstrom’s has gained off the June 4th lows and Macy’s has made a solid run off the July lows. Scan the sector for leaders and build your own watch list for trading. If you go to my TC2000 Club you can pick up the Watch List posted today.

Semiconductors tested on Monday dropping 0.8% for the day, but the double bottom pattern which broke to the upside last week is testing the move. This could be interesting as it would confirm the breakout with a follow through to the upside, and in addition, the semiconductors historically have a strong fall. Technology has been a key sector in the move off the July lows to push the broad indexes higher. If the markets are to break higher this may be the sector to watch going forward. Semi’s have had a big run and a test would be in order. Look for SMH to hold support above the $32.80 mark.

Energy is the other sector we have discussed recently as a key to the leadership for the broad markets. XLE, SPDR Energy ETF has moved towards the next level of resistance at $73. We continue to watch for a test and move higher. Breaking the sector down helps as the refiners have been the clear leader along with gasoline.

The key for now is patience. That word alone creates stress, however we have to let this play out. Maybe the downside analyst are right and the market is heading towards a major correction? Setting stops prevents you from the catastrophic events and allows you to play another day. Find what works for your portfolio and keep the focus on your goals and objectives. The low volume consolidation has just as much opportunity to move higher as to decline at this point.