3.0 Volatility Bands
Interesting
wake-up call this morning, and
until I heard Worldcom, I thought the United States was invaded by aliens. CNBC
was spewing all of the key marketing phrases: greatest this, most extraordinary
in history, etc. I abstain on Martha Stewart. It’s not worth the effort. The
market had done an outstanding job of discounting Worldcom in advance. The stock
closed at .83 last night, which certainly meant the market anticipated a very
strong potential of Chapter 11, and then the fraud news breaks.
After seeing the futures
implosion this morning, the emergency trade preparation started. First thing I
did when I came in was a get a printed copy of my volatility
bands off the site. Next, I calculated the 3.0 volatility bands on the major
indices and
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SMH |
Quote |
Chart |
News |
PowerRating)s. I then did the same on about 20 stocks that I might get
involved in depending on the opening discount or pre-opening trading in
Instinet. After completing that list and expanding to the 3.0 volatility band
numbers, I proceeded to Island.com to see the pre-market discounts of various
stocks and match them relative to their 2.0 to 3.0 volatility band range. For
example, the
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QQQ |
Quote |
Chart |
News |
PowerRating)s were 24.35 vs. the 2.0 volatility band of 24.09, with
the 3.0 band at 23.41. Intel was 17.50 vs. the 2.0 volatility band of 16.96 and
the 3.0 band of 16.27.
I now have the
“A” list, and the next procedure is to decide which stocks to enter
discounted orders on the opening. NYSE
limit orders have no standing, but if you enter a limit order at, say, the 2.0
volatility band and it opens beyond that, then you get executed. You also should
only enter a percentage of the size trade that you have decided to make. Suffice
to say, unless the government sends in the Plunge Protection Team to buy futures
pre-market, the market makers and specialists will take the stocks down to a
level where there are buyers, while only providing the required liquidity, and
in the OTC market, that is essentially nothing because of the way it’s
structured.
I now have the
“A” list, and of course, the entire list of other stocks and will keep
close watch and scroll for setups as the discount openings unfold and trade
down. Trap Doors for sure. I assume you have your longer-term strategy on your
desk and ready to get started as the September lows on the Composite and SPX are
magnets ready to be taken out. If there are some good contra reflex moves, when
finished, shut the daytrading books for the day and head for the golf course or
the beach. It’s not the end of the world if this thing persists on the downside.
It’s probably going to set up the best buying opportunity since August of
1982.Â
Have a good trading day.
Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Tuesday’s NYSE TICKS