As expected, the market continued to trade in a fairly tight range today. Typically, as the market moves closer to options expiration, the trading range gets tighter. However, post-expiration is a different story. Historically, the trading session (and the week for that matter) following options expiration is overwhelmingly bearish. The odds increase dramatically when the market is in an overbought state. This means that if the market holds up tomorrow the probablity of a move lower on Monday increases substantially. This could be a decent short-term play. As we all know nothing is certain in the world of trading. A disciplined approach with an appropriate stop-loss goes a long way to your success as a trader. Always define your risk before entering a trade. I should also note that seasonal tendencies have not held up well as of late.
As Todd Harrison (a great trader, and recently quoted on the www.thekirkreport.com) states “Opportunities are made up easier than losses”. So if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, this is a marathon not a sprint. Have a great night!
RSI Wilder (5) for October 19, 2006
- SPY - 76.7 (Overbought)
- DIA - 86.4 (Very Overbought)
- IWM - 78.8 (Overbought)
- QQQQ - 53.3 (Neutral)
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Andrew Crowder, Chief Investment Strategist, Crowder Investment Research, LLC