MARKET TEMPERAMENT –
Volatility is compressing again – it seems that traders are actively buying implied volatility when it is 14 or less (where it is right now) as they expect some kind of price action downward to spike a move upward. Charts suggest rangebound action however, so spikes quickly evaporate in this kind of environment. The SPX spread expiring today is around 20 points wide at the 2705 strike leaving us 2725-2685 as traders faded price into daily support regions. As I mentioned last week, until we recover and hold 2726, bounces will be selling opportunities in the charts as we have a potential sea change afoot.
Our Metastock swing system, TARGET RICH TRADES confirmed a short Thursday with the failure of 2717 (the first bounce into resistance) and we were able to add to this price short in the premarket. We will not add to this swing short until we close another day below 2697 and will take some profit at the 2703.75 region. Crosscurrents are still evident so additions to short entries should be at bounce zones only.
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