Market Toolbox Blog for Week of August 30th, 2010

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Last week was pretty typical in the market. Choppy trading with the bias to the downside. The weekly candle was pretty much contained in the red zone of last weeks forecast.

The Weekly chart below shows that the market is in a range bound, choppy, and somewhat sideways mode. If anything it’s not surprising that the bias has been to the downside as the economic indicators point to the fact that the so called “recovery” was partly illusion. I mean seriously, how do you come out with a 2.4% GDP number when it was actually 1.6% ?

We have next weeks anticipated range shown on the chart.

The reversal Friday was pretty amazing, but someone had to hit the big green button since we were sitting right near the support going all the way back to the flash crash and several prior intra-day and intra-week lows. On the daily chart below the top red horizontal line shows the major support right around 1040 on the S&P. The “danger zone” lies in between the red lines and though we expect to revisit that area down the road, next week might actually be setting up for a rally.

So we just tested the lower end of the range and with the sentiment overwhelmingly bearish the past few weeks, it would not surprise us to see the market drift back up to the 20 and 50-day moving averages.

Honestly, until we decisively break out of the range between the middle red and green lines, we are not in a trending market.

We will probably have to wait until after Labor Day for some better sense of direction, but it might not turn out to be the direction most traders would like to see.

Below on the seasonal chart you will notice that September is typically the worst month of the year, followed by October, famous for crashes.

Based on the fact that the market rarely does what everyone expects, we might just have a huge rally that takes us right up to the top end of the range. But I wouldn’t bet the farm on it…

The one bright and shiny spot seems to be gold and silver. While it seems so obvious that these are probably still the best investments of all, sometimes the truth is right there for all to see.

Long-time members know that we have been suggesting physical silver as the best investment anywhere for quite some time. We still believe that it’s the one thing you can buy and hold, average down and sock away for the long-term. Anything made of paper or electrons we can’t say the same for.

By the way, keep your eye on the gold and silver mining stocks as well as the ETF’s GDX and GDXJ. This could easily be one of the leading sectors between now and the end of the year.