These Are The Narrow Volatility Stocks I’m Looking At
Closing prices for the major indices finished flat for the second day in
succession. The short-term
trend for the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) is still up from the 869.45 Dec. 31 low
through yesterday’s intraday high of 935.05. Low to high, the SPX has advanced
+7.5% with this New Year’s opening rally. NYSE volume was 1.4 billion, volume
ratio neutral at 50, and breadth +90. In the sectors, the biotechs followed
through with a small +2.0% bounce, while the OIHs lost 2.3%, and the SOX -1.8%.
You are well aware of the
upside resistance levels from prior commentary, and the double top yesterday was
right at the .786 magnet zone, which is 936.13. The double top was 935.05 on
both by the 10:05 a.m. ET bar after another no-good-reason gap up opening. The
ensuing decline carried down to the .618 retracement between 954.28 and 869.45,
which is 921.87. The intraday low was 922.05. You got a quick 1,2,3 close entry
above 924.14 which carried up to 931.02. If you played the double top also, then
it was a decent day.
Both the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s and
Nasdaq had a reversal bar yesterday, with openings above the previous day’s high
and closing below the midpoint and below the previous close. That means you are
ready for any downside continuation move below yesterday’s 26.73 QQQ low, and
maybe below 26.82, the closing range low. For the
(
SPY |
Quote |
Chart |
News |
PowerRating), the downside
doesn’t come into play unless there is a move below 92.44. For the
(
SMH |
Quote |
Chart |
News |
PowerRating)s,
it is 25.12. We don’t know that this will happen, but you must be aware of the
possible acceleration points. You also must be ready in case they get taken out,
then you get a reflex rally up before reversing the lows again. If I played the
first trade through, it wouldn’t be for more than 1/2 a position if at all, seeing
that the short-term trend has been up. If you take the daytrade in the proxies
from this level, don’t carry it overnight unless there is a sufficient profit
cushion.
As I said yesterday, I
preferred a delta neutral position using options, which you can combine with
futures or proxies. I’d rather bet on volatility right here, as the range will
be resolved very soon. On the stock side, I prefer to be involved at this level
in the market in stocks where the volatility has narrowed and there is some
breakout potential in case the major indices make a continuation move to the
upside. You can wait for the breakout or get in early with a straddle, then
trade it in the direction of the breakout. If you are not an experienced option
trader, then just play the breakout with maybe a good intraday entry close to
the breakout point.
Examples of these kinds
of stocks with positive patterns are
(
NOC |
Quote |
Chart |
News |
PowerRating),
(
BA |
Quote |
Chart |
News |
PowerRating) and
(
GD |
Quote |
Chart |
News |
PowerRating), all in the
defense sector. Also,
(
MERQ |
Quote |
Chart |
News |
PowerRating),
(
MRK |
Quote |
Chart |
News |
PowerRating),
(
TJX |
Quote |
Chart |
News |
PowerRating),
(
UPS |
Quote |
Chart |
News |
PowerRating),
(
BAC |
Quote |
Chart |
News |
PowerRating),
(
FDC |
Quote |
Chart |
News |
PowerRating) and
(
BNI |
Quote |
Chart |
News |
PowerRating), just to name a few.
Remember, the major indices must be advancing in order to play these kinds of
patterns.
For the short side, I
still prefer the index proxies and sector HOLDRs.
Have a good trading day.
Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Monday’s NYSE TICKS