Traders Must Not Force Trades In Low Volatility Periods

After the 1224.19 high on the 9:50 a.m. ET bar

and 1219.64 low on the 10:45 a.m. bar, the SPX
(
$SPX.X |
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Chart |
News |
PowerRating) formed another

contracted volatility pattern, similar to Tuesday’s before that 1:25 p.m. buy

program breakout. At 3:00 p.m. yesterday, the pattern remained intact. After a

small jiggle in each direction (see chart), the SPX closed at 1223.29, +0.09%.

The Dow
(
$INDU |
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PowerRating) — price-weighted index — was +0.4% to 10,557, led

primarily by
(
IBM |
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PowerRating), +1.8% to 81.45. Technology also finished small green

up less than a point to 2144.

The market action was trendless all day with few

programs and almost no volatility, so we will probably see a few option-related

programs on Thursday and Friday. All of the “820 Trends” remained positive at

the close in the 5-, 15-, 60- and 120-minute timeframes. I have included the

(
SPY |
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Chart |
News |
PowerRating) 60-minute chart, and you can see that 122 is both minor support and

the 20 EMA level (see chart). On the 120-minute chart, the 20 EMA is 121.58, so

you have some initial focus levels for this morning. The energy sector was red

yesterday with the
(
OIH |
Quote |
Chart |
News |
PowerRating) -1.4%, but the retracements to Monday’s lows in

the OIH, that could be in the 105.40 – 104.75 zone, and it closed at 105.75.

For those of you who just trade the major indices

with either futures or proxies, you must have the discipline not to press if the

good setups are not available. When you also trade individual stocks, you can

always find good intraday opportunities if you keep scrolling. It is very

important that you trade at a risk level you are comfortable with relative to

your capital because sustained periods of stress created when you force the

marginal trades lead to significant errors of judgment. If it is not there, take

some time off and go do something else until the action heats up. FYI:Â The

British Open is on at 7:00 a.m. this morning, and if the S&P contracted

volatility range is not resolved, I have little interest in participating in any

S&P trading until it does.

Have a good trading day,

Kevin Haggerty

P.S. I will be
referring to some charts at
www.thechartstore.com in the future.