Twenty-Two And Counting

• January 9, 2002
• Kevin Haggerty

The
volume ratio was negative all day, with
a few of the tech sectors finishing small green. The
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$SOX.X |
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+0.6%, the NDX
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$NDX.X |
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Dow
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$INDU |
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at just over 1.2 billion, with 432 million up and 785 million down for a volume
ratio of 35. The breadth was neutral. 

The SPX has virtually
gone sideways for 22 trading days, as it has been stalled at a key resistance
zone. The 1174 level has been formidable so far. The 12-month moving average is
1173, the 200-day EMA 1174, and the .618 retracement to the May high is also
1174. Then you have the .38 retracement to the 1553 all-time high, which is
1175. The intraday high was Monday at 1176.97, and the high close so far has
been 1172.51. That makes it easy for your upside continuation pivot if this
five-week trading range proves to be a base for an extension of the rally.

On the downside for the
SPX, there is the 30-week moving average at 1153 and the 10-week at 1148. What
we have now is an SPX 25 point pricing box that will be resolved sooner than
later. The VIX is down to 22.50, the implied volatility of the index options are
bumping their lows, and you know the Generals will resolve this current trading
range.

Yes, you can wait to play
the breakout of either end of the box, but traders with an option education have
a better play called straddles, either real or synthetic. Those that buy the
at-the-money straddle can lift a leg on half the position in the direction of
the breakout and trend and maybe take the other half off on a pullback to the
breakout point. A stock trader would prefer to put on a synthetic straddle,
which is long the underlying and long the at-the-money puts with the position
set up delta neutral. This way you can make the adjustments regardless of which
way the Generals resolve the range. It’s pretty nice to walk in in the morning
and not care whether there’s a major crash down or a major explosion up.

Right now you have a
trading range at a key inflection point after an extended rally with implied
volatility at the low end. This makes it an excellent scenario for this options
strategy. Go get yourself an option
education. Saliba’s is excellent and covers all the various strategies, but
not until you build a base of knowledge that leads up to the strategies. Strong
roots, strong trees. Do not trade options without this education.

Stocks
Today

Stocks to look at today:
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GNSS |
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LTXX |
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LRCX |
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BRKS |
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MXIM |
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BRCM |
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Also,
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CDWC |
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SYMC |
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IDPH |
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GILD |
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TKTX |
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of the ascending triangle,
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MYL |
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VRTS |
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BRCD |
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NTAP |
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On the shortside, I’d
stay with the proxies right in here. 

Have a good trading day.

Five-minute chart of
Tuesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Tuesday’s NYSE TICKS