Be aggressive at high probability moments, but risk small amounts to make big profits.
-Paul Tudor Jones
The U.S. markets have celebrated the benign Non-Farm Payroll numbers Friday by leaping 1.3% in S&P 500, 1.5% in Dow Jones and 1.2% in Nasdaq respectively, three major indices now above their 21 & 50-day moving averages, but trading volume lacking overall.
The Russell 2000 index is weaker in comparison, still below its both 21-day & 50-day moving averages. Biotech sector showed a bit more strength as IBB bounced off a consolidation area and closed above its 50-day MA on good volume, nice to see. Biotech has been the strongest sector for recent years until it topped out in mid-March. Continuous merge news in biotech has finally played a positive role. But, as long as they are stuck in a trading range without breaking out into a new high, it remains a trading market.
Recently, many leading stocks gapped down hard on the earning reports, including CMG, CRM, BIDU, TWTR, YELP, WHR, BIIB, GMCR, PCLN, BWLD, SSYS, DDD, WYNN, MNST, etc. Even the ones with decent earning reports have reversed lower from their recent year highs and been chopping around in a trading range, such as AAPL, GS, AMGN, SWKS. These nuances occurred in individual stocks show fairly weak internals in the current markets. A six-year-old bull market is indeed getting too old to sustain its rally energetically.
For many trader who are used to upward moving markets, it’s been challenging to trade such a market with sharp up and down days in zig-zag moves. If you missed one day of big rally, you would be late to chase the gain at the top trading range; conversely, it is similar for shorts who have to cover positions quickly.
However, if you observe and listen to markets carefully, you would have made decent trades, either playing conservatively with smaller size of long positions when SPY hit the bottom trading range around 207ish while the Nasdaq McClellan Oscillator got close to minors 50, an very oversold level for short term trading, or shorting SPY near resistance of 212ish after it had reversal bars, although playing both sides requires quick reaction. By the way, the real time oscillator can be obtained on Dan Zanger’s website: http://www.chartpattern.com if you are a member. For many traders including me who like to trade SPY options, it’s good to play near-the-money call or put options for the expiration days in the following month accordingly. Weekly options can be very nerve wrecking with time value decay. The entry levels with cushion for the options are very important.
SPY currently sits around its top trading range of 212 after the huge bounce from two previous sessions ago when it hit recent low of 206.76 at the 100-day sma line. With the slow stochastic showing it is still slightly oversold, McClellan Oscillator at minus 10, with a few days before option expiration Friday approaching, I wonder if SPY may still have a bit room to move up before it will hit a brick wall again. Let’s see how it will play out next a few days.
It has been nearly 7 months since SPY has gained 30 pints (SPX with 300 pts) without a real correction. Will the “Seasonal Factor” of Sell in May and Go Away be at play? Let’s watch and see!