Volatile Day Goes Nowhere Fast


Cody Huelster

Nov 21st 2022  .  3 min read

Volatile Day Goes Nowhere

This week will be short, with Thanksgiving on Thursday and a half day on Friday. Understanding the structure of the week helps make sense of the indecision in the market today. There is also the catalyst of Wednesday being jam-packed full of economic events that can lead to sideways action.

Options with Allison Ostrander
Futures with Neil Yeager
Fibonacci & Voodoo with Henry Gambell

Market opens with indecision 

When the opening bell sounded, indexes quickly displayed rotation throughout the sectors. Initially, the Nasdaq was the weakest index, and the Dow Jones showed strength. This rotation through the indexes can cause the S&P 500 to go nowhere as it is being pulled from both directions. Divergence in the indexes is one of the first signs of a range bound day in the making.

For direction to finally take place, one of the indexes must give and follow along with the other. After a tough battle, the Dow Jones finally gave in and followed the Nasdaq lower. When indexes are moving in sync, the overall market can move fluently. After the Dow gave in to the market, it saw the most significant move of the day, providing an aggressive opening flush.

Not to be confused with a sell-off, but more of an aggressive swing lower in a range bound day. The entire day embodied a 30-point range on the S&P 500 futures. Knowing your trading style and how the market environment fits into that is pivotal. For example, buying options on a day like today, especially with a shorter expiry, can be challenging. The challenge stems from theta decay over-powering the premium as the market trends sideways.

Who benefits from today’s action?

On the other side of the transaction is the seller. On volatile days that lead to nowhere, the seller is the beneficiary to theta as the decay helps their position rather than hurting it. 

Options strategies that would greatly be benefited from a day like today are iron condors, credit spreads, and butterflies. These are three strategies that gain value from premium decay.

Key levels to watch for 

Generally speaking, the market is right where it has been for several days. Key levels on the chart have not changed much and are as follows. 

Above the current price levels to keep on the chart are the psychological level of 4,000 and the 200-simple moving average (SMA) at 4,067. Below the current price, there is a psychological level of 3,900. Two significant liquidity levels to keep an eye out for are the 15-day simple moving average (SMA) at 3,890 and the 21-day exponential moving average (EMA) at 3,887.

Another critical level on your chart is the point of control (POC) at 3,973. This level will act as the line in the sand moving forward. As long as the price remains below POC, the market can be more vulnerable. If the market can reclaim this level, it can try to work its way higher and take out the levels above to end the week.

Market starts the week off negative

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 closed down 0.36%, losing 14 points, while the Nasdaq closed down 1.09%, a loss of 121 points. The Dow Jones followed, closing down 0.11%, declining 37 points.