For eight long months, the S&P has sloshed in a sloppy but trendless range. If one examines the chart of the September S&P 500 futures below, 1480 is smack in the middle of an almost perfect 200-point range (1380-1580)-- leaving the entire new Millenium (to date) a huge waste of trading energy with very little to show for it. 1480 is also both the 100-day and 200-day moving average support. One must assume for the moment that as we continue to trade above this level, an upside breakout of some sort is brewing. The Value Line Index that we have long been focused on also looks bullishly poised, and the NYA Index just made new all-time highs (believe it or not -- see the second chart below).

Chart courtesy of Futuresource.com

Chart courtesy of BigCharts.com

But how far is an upside breakout likely to run? We have previously pointed to 698 on the NYA as one target basis Fibonacci rhythms (just 3.88% away). This might be the finale of an upward sloping wedge formation -- almost always bearish in its implications. Cyclically, we have also pointed to the week of September 4th as a likely high, preceding a potential crash-like environment into the latter part of that month. We also know that a huge number of IPOs from the frothy February-March period will be coming off lockup in late August and early September. We also see a number of former tech darlings such as Cisco, Dell, and Intel starting to diminish in their performance and overall lustre. We recently even had the head portfolio manager for the go-go Janus funds step down. The anecdotal signs are all there that if we get an upside breakout now, it will likely be a short-lived one.

So don't fight the crowd if they want to take this market ever higher in the short term, but don't get sucked in by it either. The safer, better trade on the short side is still in the offing, and from Labor Day weekend onwards, we will be increasingly attentive for technical signs that it is beginning.

Between now and then, the slop and chop (with some upside bias) is likely to continue a bit longer -- with just high enough upside movement to get everyone mistakingly excited about the return of the bull. We're nimble enough not to want to stand in the way of this improved sentiment, but suspicious enough not to believe it can persist for much longer.

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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.