Choppy and Volatile Range Boundaries for SPY

Dec 2, 2009: 6:26 PM CST

If you take a look at the 30 min chart of the SPY, you find a market filled with landmines and gaps along with a clearly defined trading range in which the market trades currently.

Let’s take a look at that range, the upper and lower boundaries, and the many gaps that formed through November into present.

I can’t remember seeing a market so choppy – it’s almost frightening to view!

This market is perhaps best left to the day-traders, as swing traders who email me are having great difficulty both long and short.

A few people have called this a “Market Distribution” phase and it may very well be, but the main take-away idea is that the market is in a tight value area and Trading Range spanning from $111.60 to $109.00.

Perhaps it’s best not to be a hero and try to trade in anticipation of a market breakout – price will either break above $112.00 and burst higher or trade back down to the $109.00 area, and any breakdown beneath $109.00 would likely lead to a range expansion move lower.

I’m a fan of the “Let the Market Tip its Hand” strategy instead of trying to guess in which direction price will break before it does.

Case in point, today’s morning action gave us a round of “Popped Stops” when price burst to a new high, taking the stop-losses of the short sellers… but buyers did not step up and continue the breakout.

As such, the chart is showing a “Failed Breakout” or more commonly called a “Bull Trap.”

Bull traps can be precursors of a shock downside move, as any bull (buyer) who bought at the new highs is now trapped, and may decide to take a stop-loss (sell), creating downward pressure, which joins with the short-selling of the bears who are taking positions in anticipation that the $111.50 area will hold and that the market will move back down to $109.00.

As a quick reference, volume and momentum have a negative recent slope to them, but that could just be traders lightning up on positions in advance of an economic-data filled Thursday and Jobs Report Friday – both of which could swing the market up out of the trading range on good news and down beneath it on worse than expected news.

I describe this in more detail along with analyzing the 60-min and daily view of the S&P 500 in tonight’s “Idealized Trades” subscriber report.

The main idea is to be safe and not over-commit yourself in a market that is trapped violently in a range, where overnight moves are large and intraday moves are – for lack of a better word – mostly rangebound.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

7 Comments

7 Responses to “Choppy and Volatile Range Boundaries for SPY”

  1. Choppy and Volatile Range Boundaries for SPY | Afraid to Trade.com … | Write What Says:

    […] more here:  Choppy and Volatile Range Boundaries for SPY | Afraid to Trade.com … Tagged as: disciplined, facebook, financial, interview, market, mentorship, money, posts-on-trend, […]

  2. the99th Says:

    The best swing-trading instruments are FX pairs since they trade 24-hrs a day, using algorithms to manage opened positions, if not an outright automated system, is recommended.

  3. Bob Says:

    The S&P is at that key 50% retracement level, a nice bounce off the bottom; the bulls have been pushing this market higher while market internals point to a correction; the financials are already sagging; commodities are way extended and we are in one of those “choppy – toppy” periods where a battle is taking place. Will the markets continue to rally and go higher? Hey, that would be a nice Christmas present; maybe a miraculous gift.

    However, lets keep in mind, this global economy is the equivalent to a giant super tanker; course corrections lag. While the long term pundits rally behind a super cycle, the fact of the matter is, near term, our economies are in distress. 10%+ unemployment is no joke! Government spending and other stimulus measures are patches on a bigger problem. Ultimately, comsumer spending must increase for our economies to gain real traction and drag us out of this quagmire. Really now, how many are feeling really good about their fiscal health? Is spending free and easy? To me, it certianly feels different than a few years back.

    Now consider government; massive stimulus spending; increasing debt burdens; state and local short-falls; unfunded liabilities… yeah, that pictures pretty rosey! I think we can expect fewer services and more taxes in the future. That's not going to help.

    We did weather a brutal storm and we will get thru this, but I expect it will take a bit longer to rebound than many have patience for, and their is likely to be some real pain yet to come.

  4. Dan de Man Says:

    Hey Corey,

    As usual, thanks for the article! These markets are tougher for swing traders but there's always opportunity. I know hindsight is 20/20 but I just wanted to show you a trade I executed. I entered on Nov 30, exited today. I used RSI 2 combined with W%R3. I've since added W%R3 as it sometimes leads the way for the RSI. You can see that the W%R3 has now rolled over so that is a sell signal today. If you trade doubles :o) this is a 10% trade.

    http://stockcharts.com/h-sc/ui?s=EEM&p=D&yr=0&m

    I'm becoming more fond of this system since stochastics are lagging and rsi and w%R are leading indicators. But of course the best swing trades are the ones with heavy duty sell offs like the beginning of November where you can ride the 3 10 MACD to a bigger swing trade.

    BTW If you're a swing trader, you don't have to swing for the fences (sorry for the pun) A 2 day trade on a double for 4% on a decent size position can still put gas in your car for a month or 2 :o)

    Cheers,
    Dan

  5. the99th Says:

    The best swing-trading instruments are FX pairs since they trade 24-hrs a day, using algorithms to manage opened positions, if not an outright automated system, is recommended.

  6. Bob Says:

    The S&P is at that key 50% retracement level, a nice bounce off the bottom; the bulls have been pushing this market higher while market internals point to a correction; the financials are already sagging; commodities are way extended and we are in one of those “choppy – toppy” periods where a battle is taking place. Will the markets continue to rally and go higher? Hey, that would be a nice Christmas present; maybe a miraculous gift.

    However, lets keep in mind, this global economy is the equivalent to a giant super tanker; course corrections lag. While the long term pundits rally behind a super cycle, the fact of the matter is, near term, our economies are in distress. 10%+ unemployment is no joke! Government spending and other stimulus measures are patches on a bigger problem. Ultimately, comsumer spending must increase for our economies to gain real traction and drag us out of this quagmire. Really now, how many are feeling really good about their fiscal health? Is spending free and easy? To me, it certianly feels different than a few years back.

    Now consider government; massive stimulus spending; increasing debt burdens; state and local short-falls; unfunded liabilities… yeah, that pictures pretty rosey! I think we can expect fewer services and more taxes in the future. That's not going to help.

    We did weather a brutal storm and we will get thru this, but I expect it will take a bit longer to rebound than many have patience for, and their is likely to be some real pain yet to come.

  7. Dan de Man Says:

    Hey Corey,

    As usual, thanks for the article! These markets are tougher for swing traders but there's always opportunity. I know hindsight is 20/20 but I just wanted to show you a trade I executed. I entered on Nov 30, exited today. I used RSI 2 combined with W%R3. I've since added W%R3 as it sometimes leads the way for the RSI. You can see that the W%R3 has now rolled over so that is a sell signal today. If you trade doubles :o) this is a 10% trade.

    http://stockcharts.com/h-sc/ui?s=EEM&p=D&yr=0&m

    I'm becoming more fond of this system since stochastics are lagging and rsi and w%R are leading indicators. But of course the best swing trades are the ones with heavy duty sell offs like the beginning of November where you can ride the 3 10 MACD to a bigger swing trade.

    BTW If you're a swing trader, you don't have to swing for the fences (sorry for the pun) A 2 day trade on a double for 4% on a decent size position can still put gas in your car for a month or 2 :o)

    Cheers,
    Dan