Traders continue to trade extended volatility
Kevin Haggerty is
the former head of trading for Fidelity Capital Markets. His column is
intended for more advanced traders. Kevin has trained thousands of traders
over the past decade. If you would like to be trained by him,
ext. 1.
On Friday the SPX closed at 1234.72
with NYSE volume at 1.29 billion shares in a daily range of five points.
The 4 MA of the volume ratio was neutral at 56 and 4
MA of the breadth only +151. The closing range from 11/3 – 11/10 of 1224.51 –
1216.40 was broken to the upside on 11/10 with an 11-point program-initiated
spurt that started just after 1:00 PM. On Monday (11/14) the SPX closed at
1233.84, with a daily range of just 5.4 points and light NYSE volume again of
1.38 billion shares. On Tuesday, the SPX closed at 1229, -0.4%, on NYSE volume
of 1.7 billion shares, with a volume ratio of 35 and breadth -1166, with the 4
MA now -236 and the 4 MA of the volume ratio 52. Yesterday’s decline was another
program-initiated move to the downside of about 11 points from 1237 -1226,
starting on the 1:20 PM bar. The programs accelerated on the 1:40 PM bar with
NYSE $TICKs -1015 and remained heavy to the downside to the 2:10 PM bar at -986.
Once the program gang took their fingers off their keys, the SPX jiggled up from
the 1226.41 low on the 3:00 PM bar low to the 1229 close.Â
Regular investors and traders are just pawns in the game of
index and statistical arbitrage that now comprises over 60% of NYSE volume, so
you have to have a methodology of trading that can survive in this market
environment. That is why the “Core Framework” and related tools that some of you
have learned will always be extremely profitable. Yesterday’s SPX RST short
setup with entry below 1237.39 vs. the intraday 1237.94 high caught the full
reversal down–as it most often does–and the program acceleration that made it
a significant move was the bonus. However, you have to take the initial position
to catch the bonus–(see SPX chart)–but why would you not have taken it
seeing that 1237.94 was right at the 3-month extended +2.0 standard deviation
band and the breadth preceding the high was very weak relative to the SPX price
advance. This meant it was a high-probability setup and that is the best a
trader can hope for in the trading business. The energy stocks provided for some
excellent early Trap Door longs on Tuesday. Both the XLE and OIH were +2.6% and
+2.2% by the Noon hour before reversing hard and finishing at +0.2% and -0.4% on
the day. Who said it isn’t a casino? I see by the emails that many Inner Circle
members took the XLE Flip Top breakout above 47.95, which ran to 48.94 (+1.5
volatility band, 48.92) before reversing down to the 47.80 close.
This is option expiration week, in addition to the erratic
behavior of the SPX as bad news continues to be good news. The PPT (Plunge
Protection Team) will probably continue to stabilize in all fear situations and
the Generals will, if possible, attempt to mark their funds up into year-end.
This means there will be ample daytrading opportunities, but don’t fall in love
with any naked positions overnight
Have a good trading day,
Kevin Haggerty
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