As much as I try not to let the noise (news + opinions) influence my trading, I am aware of some of the prevailing views by other traders out there. One of the things I heard alot of this week was the "sell the news" trade. In other words, markets were going to "tank" once a deal was announced. It seemed like everyone and their brother were ready to jump on this trade. I have to say that sticking with the trend and watching the charts & patterns worked better than the opinions of others.
(OK, OK - enough on that topic....)
In $SPX land this week, the real keys in my mind were the ability to hold the $1695.93 low, the bull-flag breakout, and the follow-through the next day.
Another factor that I think many people miss is the importance of volatility crush. Volatility crush is usually associated with the decrease in options pricing following an earnings report. In this sense, I'm using volatility crush to describe how volatility responds following some "crisis" in the markets. Once this "crisis" has passed, volatility squeezes out of the market like air rushing out of a balloon. In this environment, it's very hard for stocks to go down as put buyers and volatility hedgers get squeezed providing rocket fuel for natural buyers of common stock and calls.
Here's a chart of VXX which illustrates the "volatility crush" this week...
- Last week, we had price stalled at the top of the box
- Last week, we had NegD with FORCE vs. price to set-up the fall
- This week, price broke the bottom of the box with FORCE and volume
- Keep an eye on VXX because it can go a few points lower which would help push the indexes melt up further
For more charts and to read a disclaimer, please visit my public stock charts list on stockcharts.com...
http://stockcharts.com/public/1109955
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