The markets are at a very interesting place right now. Let’s focus on SPX, the S&P 500 Index. You will notice a few things in the chart below. First
look at the trading range over the past four weeks. In that time period it has traded in a very tight 40-point range. You will also see that price has
hovered around the Voodoo tree line. This is a strong resistance level. The Bollinger Bands are as tight as they have been in years. The Simpler Trading
Squeeze indicator is in a squeeze. The Bollinger bands are also one of the indicators used inside the Squeeze indicator.
What does all of this mean? It means SPX is currently in a low volatility environment. Which can be confirmed by the current low VIX reading of 11.80. These are typically followed by a high volatility period. Yes, price could continue in this tight pattern a little longer. But eventually one of two things will happen. Price will breakout above the Voodoo tree line at 2182.32, and the squeeze will fire long. If that happens you should see a nice move up, which will be fueled by the shorts having to cover their positions. The second scenario is price breaks down below the recent lows of 2147 and the Squeeze fires off short. The squeeze could even fire short before the 2147 price level. Then you could see a corrective move to the 2115 level.
No one really knows what will happen exactly. But if you let things play out, and let price dictate the direction to trade, you will be able to take advantage of the move in either direction. Make sure you have an open mind, are prepared and have a plan.
If the move is a breakout, look for symbols already in an uptrend, like Prologis Inc (PLD). Symbols already trending in the same direction of the breakout tend to move
quicker. See the Chart below.
If the move is a break down, look for symbols that are already in a downtrend and close to breaking below a support level, like Gilead Sciences Inc (GILD). Symbols already trending in the same direction of the break down tend to move quicker. See the Chart below.
You can also trade the SPX or SPY, the S&P 500 ETF.
I hope this helps.
Simpler is Better,