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Programs Are Driving the Action
www.oneoption.com
The Gap Reversal Thursday has almost been reversed and the market is back to the 50-day MA.
PRE-OPEN MARKET COMMENTS TUESDAY – The drop last week felt particularly nasty, but much of it was artificial. The gap reversal gained momentum and once it was established, programs kicked in. Options expiration was Friday and trading firms were able to trigger sell stops. Options that were trading for pennies traded for dollars and premium sellers were forced to reel them back in. In the last two days, the market losses have been largely recovered.
Retail sales were inline and PPI was a touch hot (.3%), but inline. Durable Goods orders and initial jobless claims will be released tomorrow. These releases won’t move the market much.
Last week we saw higher volume during the decline and less volume on the bounce. The price action is not nice, tight and orderly like it was two months ago. This is a sign that buyers and sellers are active and we are seeing mixed candles on heavy volume. Volatility is volatility. It is not bullish or bearish. We can expect big swings in both directions. If you fall in love with one side or the other, you will regret it.
Stay flexible and be nimble… or start your holiday early.
I sold some put premium last Friday and that worked out beautifully. I will be buying those options back for pennies. The handful of stocks that I was assigned on are bouncing nicely. If they bounce high enough and I can scratch the trades, and I might consider it. They fell farther than I would like. I am OK holding them, but when trades move against me I often like exiting and wiping the slate clean. I might reenter or I might not. I do have new information… the selling pressure is heavier than it has been.
I don’t plan on entering any longer term swing trades at the moment. The price action is telling me to tread cautiously and we are not getting the normal year end strength. I sense that there is some “risk off” and profit taking.
Resistance will be stiff at this level. AVWAPQ, the 50-day MA and the high from Thursday are all nearby resistance levels. The volume yesterday was anemic and that indicates a low level of conviction. I feel that lack of enthusiasm could keep resistance intact today.
I am neutral today and I could easily trade either side. The best set-up for me would be a wimpy bounce through the high from Monday with light volume and mixed overlapping candles. If the market falls back through the 50-day with ease, I would short that.
Tomorrow is one of the busiest travel days. Trade desks will be lightly staffed and the volume will dry up. This is NOT a time to take big risks and you should not have a “horrible day”. You will either make a little or lose a little because you are trading small size. If you wait patiently for your set up and you focus on one or two good trades, you will make a little money. If you force trades, you will be the Thanksgiving turkey.
Support is the 100-day MA and resistance is the 50-day MA.
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