Choppy Trading Today And A Tight Range (SPY 85-90) Next Week!

December 19, 2008
Author: Peter Stolcers, Founder of OneOption

The market has fallen into a very tight trading range. The price action on an intra-day basis is very choppy and you can feel the liquidity drying up. We are in pre-holiday mode. Option expiration will have little impact on today's direction. You can expect random movements back-and-forth. Chicago has been hit with a winter storm and New York is about to get nailed. That will prompt traders to leave early. In the last two weeks, the market hasn't been able to sustain a move in either direction. A year-end rally looks more and more unlikely. Bulls could have "goosed" the market after Tuesday's FOMC rally. Option expiration buy programs would have kicked in and a small round of short covering could have fueled us to resistance at SPY 100. Year-end strength has gone AWOL. News of a Big Three bailout did little to excite buyers today. That news was largely factored in and traders expected it to happen. Likewise, traders expect weak economic data. Last month, the GDP and durable goods orders came in well below expectations. The market did not decline as expected on the news. Consequently, these numbers probably won't affect the market when they are released next week. After a volatile year, traders are embracing this tight trading range. Bad news is already factored in and that has created a support level. Until we get some good news, the resistance level is likely to hold as well. Option implied volatilities are still at an extreme and they are declining. Sell out of the money puts on solid stocks that have firm support while you wait for the market to break out from this range. image

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