Trade Minis? Use This Chart…
On
Friday, there was an eighth-day rush up,
as the SPX
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895.90, +2.3%, while the Nasdaq
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PowerRating) was +1.4%. There was a
tremendous amount of program activity due to the option expiration. There were
also many bonds-to-stock swaps and then you had the overexuberance about the
reality of Iraq. I can count on one hand the number of eight days up in
succession since the initial Gulf War.
NYSE volume on Friday was
1.8 billion, a volume ratio of 79, and it now has an eight-day moving average of
68, which is very strong. Breadth was +1259. During these same eight days, the
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PowerRating)s +17.9%, the SPX +13.5%, and the
Dow
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PowerRating) +14.9%. The average percentage gain per day is obviously not
sustainable. The VIX has traded in a range from 41 – 33 since Jan. 27, closing
Friday at 33.62. This is high for the type of rally we have had so far, which of
course tells you many traders have one foot out the door and know something very
negative can happen at any time to create a downside air pocket.
With expiration over and
some unsettling developments occurring in Iraq over the weekend, I see that the
futures are big early red this morning as I do this. The S&Ps are -16 to 877,
the Dow -155 and Nasdaq -26, while the gold futures are up. This puts us in a
Trap Door Volatility Band mode, and you must also outline the various levels
from the last significant intraday high and low and any Fib extension that is in
play this morning for the opening decline.
It’s nice to walk in each
morning and not care which direction there is an exaggerated futures move, but
that’s what happens when you have a synthetic straddle on because you are
playing to volatility. Since the inception of the position, the SPX has declined
61 points, advanced 106 points, and now I walk in today and see the big early
red. The bet on volatility has been more than productive. The
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PowerRating), which
is the long-term bond proxy, has collapsed nicely on this rally, and the short
position is now flat. Any negative developments can send this back up in a
hurry, at which point it will be shorted again. They have declined 5.8% over the
last few days from 91.36 to 86.05.
Friday’s SPX gap pullback
trade, which was also to the 60-period EMA which is the same as the 20 EMA on
the 15-minute chart, resulted in an excellent trend up trade above the 878.40
entry level on the 11:15 a.m. ET signal bar high to the 895.90 intraday high and
close. Regardless of how you managed the trade, it was good to you.
For those of you that
e-mail me about the E-minis, the answer is that they are the derivative of the
S&P 500 cash. Just look at Friday’s SPX and S&P E-mini setups. It doesn’t matter
whether you trade the E-minis or the
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PowerRating) because it’s all based on the S&P
500 cash index. The locals can jiggle the futures, but it takes real money to
move the S&P 500 stocks, which means the underlying cash index is what you
trade the futures off of. E-mini futures are not a separate product in a
world of its own. It is simply a derivative of the cash index. Another example
is where many professional traders who understand real market dynamics will
trade certain big cap stocks that have a high trading correlation with the S&P
500 cash index whenever they see a good SPX setup in conjunction with the stock
setup.
This is a key time week
from what I look at, but I would assume the Iraq news will preempt any
price-and-time or typical sentiment-type indicators.
Have a good trading day.
Have a good week.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS