Volatility Band Reversals Are A Primary Tool For Traders
The London terrorist situation provided the extended
early SPX decline after a breakout of a 7-bar ledge below 1231.91
that traded down to the 1224.70 low on the 10:40 AM bar, This decline was right
at the 480 EMA on the 5-minute chart, which is the same as a 20 EMA on a
120-minute chart. The extended price action was almost to the -2.0
volatility band at 1223.91, so it was a high probability reversal zone for the
contra move. The five bar Trap Door entry provided the change in direction price
action. If you shorted the opening range breakout below 1231.91, this was the
opportunity to cover and go long. The Trap Door move ran to 1235.11 before
reversing down again, trading to 1225.89 and closing at 1227.04, -0.7% on the
day.
The down-up-down market action yesterday gave traders an SPX travel range
about 31 points vs. the actual range of 11.1 points. This is the kind of intraday
volatility that gives a trader a chance for multiple trades. The Dow closed at
10628, -0.6%, with the QQQQ 39.47, +0.3%, due primarily to EBAY, +20.7% and QCOM,
+8.1%. The Nasdaq was -0.5% to 2179.
NYSE volume expanded to 1.65 billion shares
with a volume ratio of just 25 and 1.22 billion shares of down volume. Breadth
was -1210. With the TLT selling off to 92.83 (-1.4%), the XLU (utility SPDR) led
the sector downside at -1.8%, followed by the SMH and RTH, both -1.6%. The XAU
was the only green close at +2.3%. Between earnings season, the overreactions
will be frequent and profitable for daytraders.
This is being recorded Thursday for Friday.
Have a good trading day and a great weekend,
Kevin Haggerty
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