Did You Catch The Expanding Volatility Reversal?
What Monday’s Action Tells
You
Yesterday’s market action ended with positive
price, but it traded like the word had gone out to hold it up. After the gap
down opening, price went sideways until the afternoon trend up until 1:00
– 4:00 p.m. The SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) and Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) each gained
+0.4%,
as it was mostly a blue-chip rally (programs) in the afternoon, while the
(
QQQ |
Quote |
Chart |
News |
PowerRating) and Nasdaq
(
$COMPQ |
Quote |
Chart |
News |
PowerRating) were lagging at +0.2% each.
Total volume was only 1.27 billion shares, as
many Generals just watched. The volume ratio was 62 with breadth +663. The
SPX
advanced for the fifth straight day, but on declining volume for the last
four
days.
None of the primary sectors really
distinguished
themselves from the major indices. The focus list defense stocks advanced
again,
with
(
BA |
Quote |
Chart |
News |
PowerRating) now up 9.3%. The S&P 500 screen today didn’t have any real
common
thread from yesterday’s action, which indicates it was primarily a
program-initiated move and not the Generals with urgent money to spend.
Also, as you should know, I find it very hard
to
get any confidence when there is rising price on declining
volume.
For Active
Traders
There was some early emotion yesterday with
the
down opening, which meant expanding volatility, and then there was the
reversal
which turned into a trend up day. I have included the
(
SPY |
Quote |
Chart |
News |
PowerRating) five-minute
chart which highlights the RST setup after the early emotion took out
Friday’s
110.10 low, then reversed that low and the 240 EMA to trend up to a 111.26
intraday high and closing at 111.07.
Because the 110.05 low was on the first bar,
down
from the 110.84 close, the reversal above the 110.10 low and 240 EMA was a
good
entry because the stop was so tight below 110.05, plus about a nickel to
give it
some room. The high of the RST signal bar with the 110.05 low was 110.38, so
the
early entry was preferred.
Price went sideways until the 18-bar Slim Jim
breakout above the 1101 – 1100 SPX pattern. This corner only caught part of
each
move and also had taken the gap pullback short on the initial reversal of
the
110.10 low, which didn’t pan out, but it was scratched at a small loss. The
Slim
Jim was taken and sold when the SPX traded below the 1105 level on the 2:50
p.m.
bar. But this corner did miss the 3:00 p.m. rally. The contra rally was
anticipated, but I found it hard to get involved on the long side after the
downside Slim Jim breakout on the 2:50 p.m. bar.
Today’s
Action
The emotional aspect right now is more
dominant
than the fundamental or technical, so it is a game of reacting to
overreactions.
The initial downside key today for the SPX is the 1104.75 20-day EMA and
110.89
for the SPY. Five days up in price with the last four days on declining
volume
doesn’t get this corner excited about the long side today and prefers
intraday
short setups for the major indices.
Have a good trading day,
Kevin Haggerty
Â