Where price action creates opportunity these next 2 months...

The (SPY | Quote | Chart | News | PowerRating) is +3.1% low-to-high so far from the previous anticipated retracement zone of short-term position action, which is 120.40 - 120.75, closing yesterday at 123.91 with the magnet high up at 124.74. The SPX (SPX | Quote | Chart | News | PowerRating), (QQQQ | Quote | Chart | News | PowerRating) and Nasdaq (COMPQ | Quote | Chart | News | PowerRating) were all +0.2% to 1236.36, 39.40 and 2172. The Dow was +0.4% to 10,673. NYSE volume was 1.49 billion shares with the volume ratio 62 and breadth weak relative to price at just +178, highlighting a concentrated advance in fewer stocks. The (TLT | Quote | Chart | News | PowerRating) declined for the second day at -0.9% with the XAU -0.1%. Crude oil futures were +0.4% to 64.65.

It was slim pickings for daytraders in the major indices based on how they traded, but the (SMH | Quote | Chart | News | PowerRating) did give traders a Trap Door long opportunity on the retracement to the 816 EMA which was also the .618 retracement zone to the 36.31 low of last Friday. The SMH traded up to 37.09 after entry above 36.64 and closed at 36.97 (see chart). Although focus list stocks like (MO | Quote | Chart | News | PowerRating) and (NOC | Quote | Chart | News | PowerRating) broke out from contracted volatility patterns, there wasn't much vig for daytraders. On the other hand, (COH | Quote | Chart | News | PowerRating) gave traders a +2.6% move from entry above 32.42, right at the 89-day EMA level. All three stocks were daily chart setups from the previous day.

The synthetic straddles which were initiated between SPX 1235 - 1245 are doing quite well after the 19-day decline to 1201.06 and now this current Katrina rally to a 1237.06 high yesterday. The bet was, and is, that there will be volatility/travel range into September and October, and we do not care in which direction as we adjust delta neutral. The trades were put on as the SPX approached the .618 retracement (1254) to 1553 from the 769 October 2002 low. There are also other significant bands which are retracements to previous bear market lows from the 1553 March 2000 bull market high. They are:

Significant bands will often come into play both ways and are always zones where price action can create opportunity, and that is one of the primary reasons, along with the low implied volatility, that the synthetic straddles were initiated, in addition to the September/October time period, which is very often very volatile.

Have a good trading day,

Kevin Haggerty