Much Noise, Little Substance Today
Price action dove in a gap-down open this morning to give appearance it was a monster day when in fact we actually traded a very tight range. Traders entering the session flat saw both calls and puts flutter up and down in value without really amounting to much. Those who were long puts from Tuesday night better have sold within the first few minutes or they missed high sales for the entire day.
We saw a sharp surge down as Greenspan's speech was publicly released. The Dow lost more than 70 index points immediately. Then it was just bouncy-bouncy until a final rally into the close.
Will the last-hour rally stick? Signs point to maybe; at least for part of Thursday's session.
(60/30-Minute Charts: SPX)
I drew the most conservative wedges possible to cover outside price action at 3:00pm EST and here's what then materialized in front of my eyes. Clear break to the upside as stochastic values begin a nice bullish reversal setup to confirm.
Why not buy calls into the close? High-risk traders could but IS would rather attempt entry at the open tomorrow, and take a smaller but high-odds chunk of any pending move rather than wager a bigger move on greater risk. I happen to know that the Type-A personalities who insist on jumping every market turn ignore us and pile in anyway, so everyone's happy after all!
A quiet open is desired and simply buying calls near the open should work good as any other entry method.
(60/30-Minute Charts: Dow)
Same picture for the Dow...
(60/30-Minute Charts: QQQ)
... and the QQQ, except the "weak sister" here closed just below resistance within its clear Bull Flag patterns. I'd buy any break above Wednesday closing price and hold until chart signals cycle into oversold or predetermined sell targets are met, whichever comes first.
(60/30-Minute Charts: OEX)
As we would naturally expect, the OEX is identical to Dow and SPX in chart pattern and stochastic value alignment. What would you say this all suggests to us?
Short-term traders should definitely favor the upside Thursday. My fantasy open would be flat, mixed or especially slightly down with a quick recovery into the green. Such a reversal would be a powerful move indeed.
(Daily Charts: Dow and NDX)
However, there is another side to this coin. Daily chart signals in the Dow and NDX aren't looking very strong right now. The Dow (left) has broken above its descending channel four days ago but has formed a widening triangle since, a sign of instability. The 10,480 area remains a key point of support going forward.
The past five sessions in the NDX (right) remained within a tight descending downtrend channel, which is a bull flag on its face. I'd like to see stochastic values confirming this pattern but instead we have the fast bar (blue) crossing down through slow (red) bar, which is a bearish signal that warns of weakness ahead.
Markets could easily roll over from here on continued negative news and our entry points for put plays would be just as simple. A break below the respective chart pattern lower lines signal confirmed failure of bullish patterns which is strongly bearish itself. IS will target those lower values for downside plays which remain alive & well here as well.
Regardless which direction a trader plays, it will involve high risk. Thursday is the actual cessation of Euro-style July contract options trading as they cash-settle on the value of Friday's open. That includes the SPX and DJX of which plenty contracts shall get opened, closed, rolled out and expire on both sides of the value ledger. We almost always get one real upheaval session every expiration week and it's usually Wednesday or Thursday. Today was relatively tame, all thing considered. We might see traders factor up all recent market data and drive price action in one clear direction tomorrow.
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