True Range

The following charts illustrate the unbelievable trading range of stocks these days - using the Dow as an example. The true range is the maximum of the following:

• The current High less the current Low.
• The absolute value of the current High less the previous Close.
• The absolute value of the current Low less the previous Close.

It basically just accounts for gaps (both up and down) between yesterday's close and today's open. The y-axis represents points that the Dow moved on a daily basis. So today's date for example, would have a single plot at 782.















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Expiration day is tomorrow. I am going to start looking at some Nov/Dec call and put spreads with at least a 3:1 risk/reward ratio. I'm currently under the belief that Monday was not THE bounce everyone was expecting and I still like the odds of short-term upside (weeks, not days). But I also think that too much strength (i.e. SPY 110) will be just that - a bounce.

SPY | RIMM | LEH | IBM | HAL | FLR | DRYS | DOW

Another close above 1400 today - a meaningless milestone. The S&P has been chopping through this level since April 28th so it doesn't seem to be as significant as once thought. While the roundedness of 1400 may get a lot of attention, perhaps the trendlines shown below will prove to be more significant.


Here are some more thoughts...









A lot of nice setups but some will require patience. I would wait for a small pullback in DRYS, for example, before going long. Same with RIMM (especially with what's happening in after hours). These are up 5.5% and 7% today respectively, so while the setup still looks nice it's probably not the best point for entry. DOW is also getting overbought (2 day RSI of 93.5). I'll have some specific trade suggestions as this week unfolds.