The S&P 500 finished a bit lower yesterday after a rally early in the day fizzled out starting around 1:45 PM. The index did manage to finish off the lows of the day with a rally in the last 5 minutes of the session, but still closed down 9.30 points to settle at 1314.88.
Over the last 5 trading sessions, the S&P has been trading in a range bordered by 1335 and 1306. But the interesting aspect is that big early morning gap ups on June 7th and June 11th were sold into with the market then selling off hard, and conversely early morning weakness on June 8th and June 12th were bought and the market rallied.
So we're flip-flopping around in this range where it's clear you must sell into strength and buy weakness (assuming you are a short term trader) as there is no follow through behind any of the moves. Eventually, this range will be broken and the market will make a decisive move.
Because of the defined trading range, there are sure to be stops set on either side. It wouldn't surprise me to see the market start in one direction and trigger those stop orders, only to reverse and head in the opposite direction in a larger more decisive move.
Here's a few charts of the S&P 500 with several scenarios. The 8 week downward parallel channel shown in the second chart is well-defined. Also be mindful of options expiration tomorrow which could skew market action.
Click on charts to enlarge view:
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