Gridlock in the Indices

Last week, I detailed expectations for the range to continue and noted that a test of lows could hopefully yield some range-trading profits for long exposure off the support levels. Unfortunately, the test of the lows didn't yield a bounce back to the highs. Instead, the indices were able to barely muster a move back to the support levels outlined last week.

While the intraday support levels didn't do much to inspire confidence, the daily chart supports held last week and this will most likely keep things locked again this week. I have been waiting for the Obama rally, but it doesn't seem to want to materialize.

I am not counting a move from 7,500 to 9,000 in the Dow as the "rally." That was simply a bounce from deeply oversold levels -- a rally will materialize over 9,800. Until then, all price movement is just congestion and range traders will continue to mop up the profits while trend traders are forced to play only the extremes in levels for hopeful moves back to at least the midrange.

Over the past two weeks, we have seen actual bad news reactions, opposed to December when it seemed that many of the negative headlines were absorbed and bought thinking that the worst might already be priced into the market. This shift over the past two weeks might just be a coincidence as we were coming off of Dow 9,000 resistance and the news media needed to find the reason for the profit-taking. Congestion will rule the next few weeks.

Until the daily chart supports can hold and offer a higher high, there will be too much focus on this or that headline vs. the future and when signs of real market improvement might appear in the price behavior. Although the thought process is not novel, I fully expect the price behavior of the market to get better long before the real economic data gets better.

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At the time of publication, Schumacher had no positions in the stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.