May 25, 2011

The market is quiet.  On Monday it will be closed due to the Memorial Day.  Volumes are relatively low. It seems as if a lot of stock trading and/or option trading “players” are either taking time off to make it a longer weekend or they are simply sitting on the sidelines waiting for the market to decide where it wants to go.  Take a look at the S&P 500 Index (SPX) chart:

I drew the two lines of major support (where the SPX should have difficulty in penetrating) that the market will have to overcome if it is going down much further. The first one is around the 1295 mark (blue line) and the next one is around the 1250 mark (red line).  If you are into Daily Moving Averages (DMA), the 50 DMA (yellow line) is was penetrated as you can see on the chart. The 100 DMA (purple line) was penetrated during the day but the SPX closed above it.  The 200 DMA (green line) is below the 1250 red line. All these can act as support (if they are BELOW the market) or resistance if they are ABOVE the market, such as the 50 DMA.

The VIX (SPX volatility index) is still quite low meaning options’ premiums are also low. Take a look at the VIX chart:

So what are we, as stock and option traders to do?  Should we trade for the sake of trading (feeling that we must make many trades) or should we take a more defensive position or not trade at all until the market tips it’s hand as to where it is headed. That is the $64K question.

Until next time, Erik

Comments are closed.