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Volatility narrowed after the new high day on Monday, as the SPX ($SPX.X | Quote | Chart | News | PowerRating) daily range was just 7.3 points. The SPX and Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) both closed down -0.5%, while the Dow ($INDU | Quote | Chart | News | PowerRating) was -0.2% and the (QQQ | Quote | Chart | News | PowerRating)s were -0.6%. NYSE volume was 1.34 billion, but the concentration of volume was on the sell side, with a volume ratio of 37, while breadth was +86. The SPX closed at 1053.25 and closed in the bottom 21% of the range, while the five-day RSI of the SPX declined to 62.
|
Wednesday 10/29 |
Thursday 10/30 |
Friday 10/31 |
Monday 11/3 |
Tuesday 11/4 |
|
| Index | |||||
| SPX | |||||
| High | 1049.83 | 1052.82 | 1053.09 | 1061.44 | 1059.02 |
| Low | 1043.35 | 1043.82 | 1046.94 | 1051.84 | 1051.70 |
| Close | 1048.11 | 1046.94 | 1050.71 | 1059.02 | 1053.25 |
| % | +0.1 | -0.1 | +0.4 | +0.8 | -0.5 |
| Range | 6.5 | 9 | 6.1 | 9.6 | 7.3 |
| % Range | 73 | 35 | 62 | 78 | 21 |
| INDU | 9775 | 9787 | 9801 | 9858 | 9839 |
| % | +0.3 | +0.1 | +0.2 | +0.6 | -0.2 |
| NASDAQ | 1937 | 1933 | 1932 | 1968 | 1958 |
| % | +0.2 | -0.2 | -.02 | +1.8 | -0.5 |
| QQQ | 35.32 | 35.39 | 35.15 | 35.77 | 35.55 |
| % | -0.1 | +0.1 | -0.7 | +1.7 | -0.6 |
| NYSE | |||||
| T. VOL | 1.52 | 1.62 | 1.40 | 1.36 | 1.34 |
| U. VOL | 988 | 799 | 763 | 1.02 | 485 |
| D. VOL | 513 | 803 | 654 | 318 | 836 |
| VR | 66 | 50 | 54 | 76 | 37 |
| 4 MA | 60 | 64 | 62 | 62 | 54 |
| 5 RSI | 67 | 64 | 69 | 78 | 62 |
| ADV | 2065 | 1647 | 1792 | 2270 | 1677 |
| DEC | 1179 | 1634 | 1418 | 984 | 1591 |
| A-D | +886 | +13 | +374 | +1185 | +86 |
| 4 MA | +678 | +803 | +617 | +614 | +440 |
| SECTORS | |||||
| SMH | +0.9 | +0.9 | -0.5 | +3.8 | 0 |
| BKX | +0.5 | +0.3 | +0.2 | +1.0 | -0.2 |
| XBD | +0.5 | -0.2 | +0.5 | +1.5 | -0.7 |
| RTH | +0.2 | -0.4 | +0.1 | +1.2 | -0.8 |
| CYC | +1.0 | +1.2 | 0 | +1.0 | +0.2 |
| PPH | -0.7 | -1.0 | +1 | -0.1 | -1.3 |
| OIH | -1.4 | +0.5 | +2.4 | -2.0 | +0.4 |
| BBH | -1.3 | -0.2 | +0.9 | -1.0 | -0.5 |
| TLT | -0.9 | -0.4 | +0.9 | -0.5 | +0.6 |
| XAU | +1.8 | -1.8 | +0.5 | -2.1 | +0.8 |
After a six-day up move to new highs and also into a zone of confluence, in addition to entering a time zone, it should be no surprise if the market churns or evens reverses some. If you refer to your daily SPX chart, you see that the swing point high on Sept. 8 and the one on Sept. 18 were both similar inside bar patterns which resulted in short-term retracements of four and seven days. There is currently a negative divergence in the Chande (20) Momentum Oscillator during this six-day rally to new highs, so that also puts you on alert.
For Active Traders
The opening gap down for the major indices provided opportunity once again for daytraders. I have included the five-minute charts for both the SPX and (CY | Quote | Chart | News | PowerRating) which highlight the First-Hour Reversal Strategies from yesterday. First, look at the SPX chart. You'll see that it traded down to its 240 EMA and intraday low of 1052.94 on the 10:00 a.m. ET bar. (You have seen that many times before.) This proved to be the signal bar for the reversal contra move. (Remember the 90 - 60 rule.)
In addition to the 240 EMA, there was confluence with the 2.0 Fib extension of the Monday leg up to the 1061.37 high. The 1.0 volatility band was just below at 1051.10. Entry was above 1053.86, and it ran to 1058.12 by the 11:35 a.m. bar to the 1061.37 high and then resumed the direction of the open, which it does on this kind of early trading about 60% of the time, while there is a contra move 85% - 90% of the time. You get the house edge twice with the First-Hour Reversal Strategies, and I don't mean wasting your time with scalping.
The CY trade was an excellent opening reversal as the semis were clearly showing better relative strength on the early down in the major indices. CY opened at 22.42, making a 22.45 high on that opening bar (O), which was also the previous day's high, and above 22.51 would be a new rally high from the October lows. Significant positive volume came in on the next two bars (1 and 2) and CY was on its way. You took the entry above 22.45, or else the Flip Top entry above 22.50. It didn't matter. The stock traded up +5.3% to 23.50 from entry and topped out there before trading down to a 22.75 close along with the afternoon downtrend for the major indices.
If you are the kind of trader that takes an initial 50% position on first entry, then adds to it with lesser shares on the next two reversals up in your favor, then this trade played right into your hands. I marked those two add-on entries on the chart. The key point is CY was an opening reversal trade that had a very strong daily chart setup, and that combination works best by far.
For Today
The early futures are red as I do this at 6:45 a.m. ET, with the S&Ps -4, Dow -34 and Nasdaq -4, but obviously it's early in the funny money pre-market futures game. The SPX closed yesterday in the bottom 25% of the range at 1053.25 and below the midpoint of 1056.64 from the previous day. That midpoint becomes the initial pivot today for daytraders. Yesterday's low was 1051.71, and the 1050 level is minor support developed since Oct. 14, which becomes another early pivot. The 1.0 volatility band is 1045.34 and 1061.15 above. The 1.0 volatility band range has narrowed to less than 8 points, as there is certainly no wall of worry when you see that the AIV (Average Implied Volatility on the at-the-money call and put) has been running below 15 for the past five to six days. If the futures remain red and we get the early down opening, the SPX can start to form an RST below yesterday's low of 1051.70, and ideally around the 1.0 volatility band.
Have a good trading day,
Kevin Haggerty
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