Securities Research Services

Thursday, March 29, 2007

Range Bound

The market is stuck in a trading range here. Analyzing stocks as if they were trending in this environment causes a distorted reading and causes trades to get chopped up in the choppy range trading they are experiencing here. We have made that mistake with one or two positions this week ourselves.

Even though the market is range bound here, we think that there is a good argument that the market may spike higher in the next few days and make a move to the upper end of the trading range rather than return to support levels. Evidence in favor of this bullish spike is the fact that the VIX is once again spiking, showing extreme fear and measuring the fact that large hedge positions are being placed. Likewise, the put:call ratio remains overly bearish, so any strength has the potential to cause a short covering rally.

On the other hand, over interpretation of Bernanke’s future intentions has the potential to send stocks back to the bottom of the trading range. Odds on this latter scenario are low, but it is a possibility considering the fact that stocks are trading in the middle of a trading range here.

1 comment:

Unknown said...

good data today won't let the market down. so just go long if you see dow around 12300,(target 12400). regard.