Further to yesterday’s Leveraged ETFs, Volatility and Range-Bound Markets as well as my take on The Elusive Trading Range from mid-June, I thought I would share a chart I included in last week’s subscriber newsletter.
The chart below captures daily bars of the SPX going back six months. It includes Fibonacci retracement levels based on the April SPX high of 1219 and the July 1st low of 1010. I have also added secondary support and resistance levels (black dotted lines) at 1065 and 1170 and have shaded the center of the Fibonacci zone (38.2% to 61.8%) in what looks like a salmon color (hey, it’s lunch time.) In addition to the SPX support and resistance lines, the study below the main chart is of the McClellan Summation Index (NYSI), a measure of market breadth, which shows more strength than has been reflected in just the recent price action.
My working hypothesis continues to be that we are in a trading zone that have been and will likely continue to be defined by some of the support and resistance levels on this chart. If this turns out to be the case, even with the VIX at what is now almost a three month low, straddles, strangles, butterflies and condors can still be attractive trades.
For more on related subjects, readers are encouraged to check out:
- Leveraged ETFs, Volatility and Range-Bound Markets
- The Elusive Trading Range
- The Sideways Play
- Sideways Markets, Covered Calls and the RUT
- Straddles vs. Iron Butterflies