Indecision And News Flow Creating A Tricky Trading Environment For Friday

Indecision was the name of the game today, with tremendous volatility across the board. With Lehman (LEH)/Bank of America (BAC) news after today’s close, and PPI and retail reports in the morning, investors have a considerable amount of information to digest before Friday’s open. Chart-wise, Thursday’s buying into the close leaves us with a somewhat bullish orientation in most sectors. Given the complexity of news flow, however, traders would be wise to tread carefully, especially in morning trading.

A look at the iShares Russell 2000 index (IWM) chart gives us a good idea of the confusing scenario. IWM gapped down at the open below the 50 and 200 day moving average, then spent the rest of the day progressing higher, ending the day positive on increasing volume. Technically this action appears bullish, but I am wary.

- Retail HOLDRs (RTH): The continued strength of retail shares has me totally mystified, but fortunately I am not doing much trading here.

In a tricky trading environment, commodities and technology shares appear to be providing the clearest signals. In both cases, we have oversold conditions, and some volume behind the buying today. The oil services sector looks particularly good for the short term.

- Oil Services HOLDRs (OIH) started the day lower, then bounced off of support to end the day up over 2% on higher-than-average volume.

- Market Vectors Steel ETF (SLX): The steel ETF had similar action, although the support is not so clear.

With today’s action, news, and reports in the morning, this is not a good place to be short the market. We are due for a bounce that would set up many charts for short sales. Given the volatility and indecision demonstrated today, it may be wise to start the weekend early.

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