Big Market Swings Indicate Buyers and Sellers Are Active – Great For Day Trading

Posted 9:30 AM - Yesterday the market bounced and once the momentum was established quadruple witching fueled the rally. These big swings each day indicate that buyers and sellers are engaged. All of the expiration related adjustments have been made and this should be a relatively quiet day. I am expecting a couple of long loping moves today. The downside will be tested early and the market should recover. If you add up all of the open interest on SPY options you can calculate where the maximum number of contracts will expire worthless. That number is known as Max Pain (option buyers take the biggest losses) and it sits at $215. I believe we will close near that level today. The early part of next week will focus on the FOMC statement. No one expects the Fed to move after weak employment numbers. However, they might pave the way for a December rate hike and hawkish rhetoric could spark additional selling. That would push us below the 100-day moving average and we would be able to gauge the support. September is historically a weak month. There really isn't much to drive the market in either direction. Earnings were decent, but stocks are fully valued at this level. Economic growth is sluggish but stable. We will be in a flux through year-end and I'm expecting the 200-day moving average to hold and the highs of the year will to hold as well. The market will travel in that range and it will constantly be waiting for the next event. After the FOMC meeting next week, we will be waiting for the November FOMC meeting. After that will be waiting for the election outcome. After that we will be waiting for the FOMC statement in December. I am back to my normal trade size, but I won't increase it as I normally do this time of year unless we get a massive pullback. Given that credit markets are relatively stable, that is unlikely. I have been day trading from the long side and we are finding powerful stocks that want to run. These moves are sustained and the price action is orderly. I can't say the same for stocks that are relatively weak. They tend to be much more difficult to trade and the price action is choppy. Look for stocks that have relative strength and that are breaking through horizontal resistance on heavy volume. Know that there will be a couple of big swings related to quadruple witching today. The SPY should finish around the $215 level today. . .

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