Here's What You Can Do About Thin Liquidity

The volatility increased into the 08/05 Fib time ratio as the SPX ($SPX.X | Quote | Chart | News | PowerRating) had a down-up-down trend day. The SPX finished the day at 1235.86, -0.7%, with a range of 9.9 points. There was an initial Trap Door long entry, then a .618 retracement contra move to 1241.73 (vs. the previous day's last high of 1245.18). The "90% - 60%" rule kicked in, and the SPX resumed the direction of the down opening, trading to a 1235.15 intraday low. The initial Trap Door long trade was after the 1238.71 low at the 480 EMA. If you took the .618 retracement short entry below 1241, it declined 5.8 points to 1235.15. There was a -1.0 volatility band and also Fib extension sequence for the initial Trap Door. It didn't run much, but the short .618 retracement entry was a bit better. You can't know the duration and extent of a move, but the sequence methodology enables you to select both trades (see SPX chart). The Dow ($INDU | Quote | Chart | News | PowerRating) lost 88 points (-0.8%) to 10,610, while the (QQQQ | Quote | Chart | News | PowerRating), 39.67, was -1.0%. NYSE volume was 1.5 billion shares, but mostly to the downside with the volume ratio 27 and breadth -1124. The (IWM | Quote | Chart | News | PowerRating) -- Russell 2000 -- was -1.8%. All of the primary sectors, except for the (OIH | Quote | Chart | News | PowerRating) -- energy -- which was +0.6%, were red. The downside was led by the semiconductors with the (SMH | Quote | Chart | News | PowerRating) -2.1%, with the XBD and RTH each -1.8%. The early selling slowed by 12:00 p.m. ET and the SPX ranged out into the close between 1238.16 - 1235.15, but did close in the low end of that daily range.

When the liquidity gets thin like it often does in August, daytraders are better served by reducing position size and keeping stops tighter.

Have a good trading day,

Kevin Haggerty