More than a few market observers are calling for new lows within the next few weeks or in a few cases, days. Anyone who thought August market action would go straight down without pause must not have lived through the recent volatility many of us have. These present markets are destined to stair-step their way in range bound fashion wherever it is they do intend to go.
Today's rally was a rather orderly event that chopped sideways from the open until 2:00pm when the customary final two-hour buy programs kicked in. How can we tell when buy (or sell) programs turn on? Price action makes a sudden and dramatic move as the screens whirr green or red with directional prices.
It's estimated that 35% to 50% of a given day's trading volume is a result of program trades, and low volume times like these must have that equation towards the high end for sure. Not all program trading is S&P 500 arbitrage, either. Plenty of traders key their programs to buy or sell the Dow or NDX if/when certain price points or times of day are reached.
And retail traders are left to read the tea leaves that predict such action. Today was a very tradable event for scalpers, but with high time-premiums and rather limited moves it was barely adequate for anything else.
(60/30-Minute Charts: SPX)
The lower black lines and bisecting blue lines show where the intraday action coiled until 2:00pm and broke out from there. But not for much, and things are looking toppy already.
Both black lines form a pretty clear bear flag consolidation with fewer touches than I'd really care to wager on, but that's what we have to work with. Doesn't look like a sustainable move from there to me.
(60/30-Minute Charts: Dow)
The Dow has a similar bearish ascending wedge and topped-out stochastic values as well. We can see where price action bumped around various short-term Fibonacci values and possible points to enter on or set stop losses within should they be breached. Looks like the 50% area has held support for now and 10,230 needs be maintained unless Tuesday lows are to be tested once more.
(60/30-Minute Charts: QQQ)
The NDX/QQQ actually like it has some formidable resistance around the 38 area and a bounce down from overhead traffic there could mean a trip back down to the centerline or lower line values of the hourly descending channel.
(Weekly/Daily Charts: XOI)
A few readers have asked about oil and what's going on over there. Well, weekly chart stochastic values are reaching their overbought stochastic zone while price action coils into a wedge. Daily chart stochastics are nearing oversold to mix & cloud the picture.
I'd guess we could see another upswing until daily chart signals cycle back to overbought extreme in harmony with weekly stochastic values and the downside may be in order there. Keep in mind that oil stocks usually lead the underlying commodity in price on the way up, and likewise on the way back down.
We seem to be in for some extended market challenges and sideways to down may be the persistent trend far longer than many care to realize. Meanwhile, regardless which direction prevails there does promise to be numerous counter moves to that trend and hitting entry points and acceptable exits will continue to be keys for success.
The days of buying distant-month call options and letting them run have been over with for awhile, and buy & hold trading of any kind has been perilous at best since then. I'm not convinced that will change anytime soon but there are answers to sideways market action as well.
"Austin, you were right on with your advice that daytrading is not easy or for the faint of heart!! In January, I subscribed to Index Skybox (had been an OIN subscriber for some time) and thought that index trading was the thing to do. No need to paper-trade; after all, I had "trading experience". Wrong. Rapid account collapse ensued. Painful lesson but lesson it was... the start of my pursuit of education to daytrade index options.
I have notebooks filled with IS articles along with notes of my own observations. I pursued this education full-time. I was at the computer 6-8-10 hours every trading day of every trading week. After many months of study, I decided to play real money during August expiration week. I am happy to say the week was a success. Did not win every trade but did manage losses so that the week overall was profitable. I took only 2-3 contract positions on the OEX, and although I enjoyed some modest successes I'm not ready to bet the farm yet!
In several of your articles you have stressed that to daytrade one must take the emotion out of the decision and become a reactionary trader. This was a priceless piece of advice. I had only one losing trade for the week and it was on Friday--I lost $1.50 but my next trade made $1.50 for a breakeven. In the past, emotionally, I would have watched the $1.50 become a total loss thinking it would come back!
Allow me to recap my educational process for the benefit of other
My profits from the August expiration week covered my IS subscription cost year to date and my cost for the Spring seminar. I am looking forward to an exciting and profitable Fall trading season and continuing my educational experience with IS. Many thanks to you and your staff for the great work. Kindest Regards, Mike Hogan"
Well Mike, all I can say is how thrilled we are here at IS to know you made the necessary effort to succeed. If I read this right, you have paid for your yearly subscription and the spring seminar while getting a professional education with earning power potential greater than a doctor, lawyer or CPA might enjoy. Some college experience... wouldn't you say?
Now I hope you continue to progress very carefully and earn that trip to the fall seminar as well. See you there!!!
Best Trading Wishes,