Posted by Pete Stolcers on August 7

Posted 9:00 AM ET – The market is trapped in a tight range and we are heading into a news vacuum. Volume will drift down to its lowest level of the year and traders will take time off. This low probability trading environment will last a few weeks.

Earnings season is winding down and 70% of companies have exceeded estimates. Guidance for Q3 is excellent (six-year high). Now that mega-cap tech stocks have reported, the excitement will wane.

The Fed is in recess until September and when they return we can expect more tightening.

Politicians are also in recess and the debt ceiling will be upon them when they return. Investors will be nervous.

The next major economic release is weeks away. The numbers last week suggest moderate growth.

Swing traders need to keep their powder dry for a few weeks. Time decay will hurt option buyers and historically low option implied volatilities make it risky to sell premium. Don’t waste your capital trying to trade random wiggles and jiggles.

Day traders need to trim their size and reduce their activity. I will be more active when the market opens lower. Relative strength is easier to spot and I want to favor the longer-term uptrend. These dips will provide a nice entry point. I will reduce my activity when the market opened is flat and I might not trade if it gaps higher on the open. Use the first hour range as your guide.

In the last five trading days we have seen the S&P 500 trade in very tight two-point ranges.

Support is at SPY $246 and resistance is at $248.

In a few weeks we should see signs of profit-taking and there will be a shorting opportunity. Until then, keep your powder dry.

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