Trading the Zones

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Friday was essentially flat for the major indexes, with the SPX closing at 1402.85 (+.07%), with the $INDU -.01% to 12276. The QQQQ was only +.02% despite the semis up with the SMH up +1.7%. The energy stocks, which have been a primary focus in the trading service, led the week with the OIH +4.1% and is back to the top of its trading range, with the XLE +2.7%. The OIH has advanced for 4 straight days. The semis gapped on Friday due in part to the TXN upgrade, and the SMH finished the week +2.9%. However, the gaps both ways on any news is routine for the semis, but the reality is, they can't get out of their own way, as the SMH remains in the middle of a 10-month trading range. Each time there is a positive upgrade, the hedge funds try to run them, but it has failed each time, as sellers let them buy whatever they want, and that chases the hedge funds away. In fact, trading money was made on the sell side in the semis on Friday, as the SMH gapped up to the +2.0 Volatility Band zone, setting up the RST short, which was a "no-brainer." It traded down -1.4% from entry below 34.75 to 34.26, before closing at 34.61. The Sequence Trading Module is best for learning about the RST because it combines all of the primary tools which provide symmetry, and covers in detail multiple ways to use it in multiple time frames for both daytraders and swing traders.

NYSE volume declined for the 3rd straight day Friday to 1.43 billion shares, with the volume ratio neutral at 55 and breadth +636. The SPX is 4 days off the 1374 bottom, and the 5 RSI is still only 48.71, which is an anemic bounce so far. This is a triple expiration week, with the market coming off a mini-meltdown, so the odds favor a strong trend-up day before Friday. The SPX has failed to close above its .382 retracement (1407.45) to 1461.57 from 1374, finishing Friday at 1402.85. The $INDU (12276) has also failed to close above its .382 retracement level, which is 12328. The generals won't let this market cycle die on this initial mini meltdown, so they will take the SPX up to at least the 1422-1428 zone, and then we will find out how many "players" will lighten up on the sell side. This is a significant time week, and if the market advances, it can set up a reversal to retest or take out the 1374 level.

The long delta neutral synthetic straddle suggested in this commentary when the average implied volatility was below 9 has obviously been successful.