Range trading

Although traders may be talking up "economic weakness" as the "reason" for recent stock market declines, the more likely scenario is that the stock market is "locked" in a trading range. This means that short-term traders push stocks up until they begin to meet "resistence" and then reverse their trading bias and push them back down. Then, as stocks fall far enough to start bumping into "support", traders reverse their bias again and push them back up. Occasionally stocks manage to push up through resistence to establish a new bullish trend and occasionally stocks fall through support to establish a new bearish trend, but more commonly stocks simply bounce up and down within a "trading range" until either new money flows into the market or investors decide to allocate assets away from stocks. Recently the market has been trading down towards support. How much lower it trades remains to be seen, but any day now we could see a day where the market starts out with significant weakness, hits a low for the recent trading range, and then bounces up strongly and heads back for the upper limit of the trading range again.

Sure, you can write it all off to "volatility", but the reason for the volatility is short-term traders all trying to out-guess each other as to where the limits of the trading range really lie. Nobody want to be the last trader to realize that the short-term trend has reversed. And, there are multiple trading ranges for different time scales, including for intra-day "day trading."

-- Jack Krupansky