Looking at the August S&P 500 Action

Sep 2, 2008: 11:39 AM CST

With August now behind us, let’s look at what happened during that month in terms of the S&P 500 Index.  Hint:  A lot of up and down that left us relatively unchanged.

Let’s look at the Daily Chart of the S&P 500 Index:

It looked initially that we broke out solidly above moving average support and from an ascending triangle around August 11th, only to have that pattern ‘busted’ and then decide that a potential wedge was forming, and that a breakout down out of that wedge around August 18th happened, but that pattern too was ‘busted’ and so August was a month of great confusion and indecision according to the price charts.

Swing traders likely had great difficulty, as true signals were generated and then quickly eroded into losses on both sides of the market – the edge fell to the intraday trader, and even they were chopped up sometimes mercilessly through intraday buy and sell signals which themselves were quickly faded/busted.

One must understand that August’s (and July’s) rising price action was classified as a counter-trend retracement against the prevailing daily (and weekly) index down-trends, and as such, trading counter-trend is often far more difficult than trading swings in the direction of the trend (compare the price action of May to July in terms of a primary trend swing down with July to August’s counter-trend retracement swing – it’s a world of difference).

At the moment, we appear to be testing the rising trendline (trendlines, once broken, often switch polarity, in terms of support becoming resistance, which could be happening here), which offers a temporarily bearish assessment, but two previous signals have failed and the market is embroiled in a major power-struggle between buyers and sellers of various time-frames and so short-term patterns are not having the efficacy we would expect – things are more murky than we’d like.

Now, let’s take a look at the hourly chart that focuses in almost exclusively on August’s intraday action, which details the consolidation situation a little better:

All this chart shows is the August price action which confused many, many traders in terms of false break-outs and narrowing price swings.  There weren’t many (if any) momentum divergences on this time-scale, and moreover, we’re just looking at rhythmic swings that potentially gave traders many headaches.

One of the best explanations and insights I’ve found so far regarding the current state of the indexes comes from Trader Mike’s August Recap:  Holes in the Wall in which he details the current state of the main equity indexes and uses the Guppy Multiple Moving Average method to describe some conditions possibly missed by other analysts.

You can also take time to learn more by viewing educational videos from INO.com or other websites – including four free videos.  I strongly, strongly recommend joining the INO.com TV Premium educational video service for $99 for a full year which grants you access to on-demand access to over 500 videos and print-offs from over 150 trading educators.  These are recorded sessions of seminar presentations, which are often one and a half hours in length each.  Take time to check out and subscribe to this resource.

Otherwise, just keep learning and trading small to protect your capital in these choppy markets!

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