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Sideways Markets

Technical Analyst & Editor
March 27, 2007

Despite this week's FOMC induced rally, nothing has changed in the big picture.

The three sectors of tech, gold, and energy which we cover, have been in a corrective phase and therefore, have been and still are stuck within a trading range for the past few months.

The chips have been stuck inside a 7% trading range. Barely budged this week.

and the cube is even more challenging, a 5% trading range. Had a nice pop on Wednesday after the neutral stance the Feds have switched to, but still short of the upper resistance.

GDX, the gold stocks ETF is a little more generous, with a 13% trading range. Also a nice pop after the Fed's meeting, now at the 60% retracement of the recent sell off, and at the middle of the trading range, kind of a no man's land.

OIH, the energy ETF is the most generous with a 16% trading range. This week's vertical ascent has pushed OIH to the top of the trading range. A continuous move up here will be considered a breakout, while a sell off may drop it back to the lower trading range.

Summary

A sideways market is challenging for most traders. The sharp rallies stir up a lot of fear. Fear of missing out. The equally sharp sell offs which follow also create a lot of fear. Fear of losing. As a result, most traders are caught up with this emotional roller coaster, and get whipsawed. A lot of money can be lost as the trading range continues. Conservative traders should be patient and sit out these sideways conditions and preserve your capital until a major breakout is confirmed and a new uptrend begins. Aggressive traders can take on some small trading positions when we have set ups and when risk is manageable, and exercise discipline.

But a sideways market is not all bad, option sellers love these conditions as 90% of all options expire worthless. Please consult an option specialist if you intend to be an option seller, and as always, manage your risks.

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Disclaimer: Words of caution: public readers of my commentaries should exercise their own judgment as to whether to buy or sell anything. Never trade based on other people's analysis. Knowing which way to place our bets is only half of the formula to success. Wishing you peace and profits......................................

Jack Chan is the editor of Simply Profits, established in 2006. Chan bought his first mining stock, Hoko Exploration, in 1979, and has been active in the markets for the past 37 years. Technical analysis has helped him filter out the noise and focus on the when, and leave the why to the fundamental analysts. His proprietary trading models have enabled him to identify the NASDAQ top in 2000, the new gold bull market in 2001, the stock market top in 2007, and the US dollar bottom in 2011.


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