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> If you look at each number on the chart you posted
> I get the impression that we will get at least some
> kind of a bounce tomorrow.
Yes we do, in most cases. There is almost never an open + high below the low
of the prior (today's) OEX bar.
These signals - MOC today 5/15 - are just "armed" and not "fired".
Hence the cautions: Wait for RSI(5) to uptick thru 30, wait for VIX to rise
back inside the channel.
As with anything oversold, it can get more oversold.
Eg - RSI (5) can go to zero as vix trends lower.
Eg - VIX trends lower, and tracks below the -10% band for days together,
never trading up 10%.
The combination signals can stay armed for the next one or two sessions, at
which point
the trader's psychology starts asking questions re whether this is the time
these end up as duds.
Still, I take the shot and stay with the trade.
Why:
- OEX is doing its consolidation thing at the 50/20 ema's.
- High energy point dates clustered during this week, as posted here by
fellow traders.
- VIx signals armed today.
Ducks are lined up enough for me.
Mr. Connors maintains that these can be upto 1 day early.
I maintain that these are useless at inflection points that result in a
sustained bull trend, we may well be there tomorrow.
Still, even in its failure there lies value to me:
How:
If these signals fail to produce the desired sell side followthrough after
say Thursday 5/17 close,
a/ Market tells us that the upthrust will be really powerful and sustained
for weeks.
b/ There will be thus be more than enough opportunity to start focussing on
buying pullbacks (which should be shallow).
c/ This trading, of course, ignores all the breadth etc confirming
statistics.
Generally:
Lower vix only makes these options cheaper to buy.
Cheaper options opens up a few alternatives further down the road:
- More can be bought for the same amount of money.
- Hence one can sell a portion for a double and ride the rest with the
house's money.
- If price trends, one gets price expansion and volatility expansion in
one's favor.
- If price oscillates in a trading range, one gets to leg out for breakeven
or more - since volatility rises nonetheless.
- As long as time to expiration is not too close, one can always start doing
spreads against this core position.
I am long strangles (calls above and puts below the market) going into the
Fed meeting.
This, with the ATR of OEX trending in double digits.
I think we can handle a day or two of delayed detonations :)
In any case, this would hardly be the last move of the game that begins
tomorrow.
Gitanshu
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