A Potential Volatility Play
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Futures and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
At the time this is being published, the S&P Globex Futures are trading .90 points lower and the Bond Market Futures are trading up 1 tick.
Last night, I mentioned September Bonds [USU9>USU9] as a potential volatility play. Today, they rallied 25/32 and had their largest range in over a week. These are the types of moves that are possible as volatility reverts to its mean.
September S&P Futures [SPU9>SPU9], on the Pullbacks From Highs List, closed well today reversing Friday’s sell off. Look for a buying opportunity here as the market appears to be rallying out of an oversold condition.
For you breakout players, October Sugar [SBV9>SBV9], mentioned over the past few nights, is a pattern I call a Trend Knockout (TKO). This is where a strongly trending commodity sells off and takes out (at least) the prior two lows (a). The theory is that it “knocks out†the weak hands and clears the way for the commodity to trade higher. Continue to look for a buying opportunity here but wait for confirmation in price (i.e. for it to trade above today’s high).
Source: Omega Research.
December Cotton [CTZ9>CTZ9] sold off sharply today to new life of contract lows. Look for a shorting opportunity here or better yet, wait for a pullback before attempting to enter.
Best of luck with your trading on Tuesday!
Dave Landry
PS-Reminder: Protective stops on every trade!