Volatility and the Dog Days of Summer

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angry dog with bared teeth

Earlier today, we highlighted the spreading risk of global debt and currency problems.

But what does it mean for the chart most of us really care about, the S&P 500? Here are some thoughts.

First, the U.S. index is in the midst of its longest weekly winning streak since mid-December.. up five straight weeks and trying for a sixth right now. It’s been a nice run. Bulls might take some profits.

Second, the S&P 500 is stalling at the same area where it gapped lower in January before crashing. Some chart watchers may see that price zone around 2850 becoming resistance.

Third, the quiet period of late August is approaching. Earnings season and big economic reports are mostly finished. Does it make sense to expect a breakout on low volume with no catalysts? Or, will the happy news of strong profits (now mostly priced in) be replaced by the unhappy news of global financial crisis (not yet priced in)?

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But the S&P 500 could have halted at a key level as the mix news headlines turns from positive to negative. For the time being, there may be no way to go but lower. Meanwhile, Cboe’s VIX “Fear Index” is coming off its deepest trough in almost eight months.

S&P 500 with potential levels to watch.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.