Strategy for the Low SPX Volatility

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1.

The SPX had its fifth narrow-range day in succession, closing at 1448.31 -0.1%. The closing range for the 5 days is 1450.02-1443.85, and the intraday high-low range is 1453-1442.86. The implied volatility of the SPX ATM call and put is 9.43%, versus the 8.65% 52-week low, and the $VIX is at its all-time low range. The complacency is extreme, and the market is trading as if all the algorithms, ETF support, PPT (Plunge Protection Team) and buy programs will make bear markets obsolete. What geopolitical risk? Is there a $US dollar? Inverted yield curve- what is that? Etc etc. This will all be resolved this year, sooner than later. In the meantime, for those of you into options, there is an excellent market condition to sit with a long synthetic delta neutral straddle, so you can play any change in direction from the current contracted volatility.

NYSE volume expanded yesterday to 1.6 billion shares with the volume ratio neutral at 48 and breadth -145. The 4 MA's are all neutral now at 52 and +249. The previous short-term overbought condition has been worked off in the sideways price action in the SPX. The best major index trading opportunity yesterday for daytraders was the DIA, trading down to the -1.28 VB 125.81 zone with an intraday low of 125.78. The long reversal traded up to 126.56 before closing at 126.38. It doesn't matter whether you traded the DIA or the future, but it is best to determine entry off the cash, not the future. The intraday volatility in the energy sector set up excellent RST long entries in the OIH, XLE and many of their component stocks. The XLE was +1.6% from entry, and the OIH +1.93%. This sector continues to be a daytrader's gold mine of trading opportunities, especially with the major index contracted volatility.

The weeks ending February 16 and February 23 have significant long-term timing elements relative to the 3/24/00 top, and the 10/10/02 bottom. I expect volatility to expand significantly.

Have a good trading day,
Kevin Haggerty

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.