Triple Digit Moves To Nowhere

Gregory A. Clay • by Gregory Clay

Option Trading Strategist & Financial Writer • Oct 11, 2016 at 1:07 PM EDT

Eventually, stocks will break out of the current trading range and there will be an opportunity for directional bets.

As indicated in the Dow Jones Industrial Average chart below the overall stock market has basically moved sideways since the beginning of September. We have had a plethora of daily triple-digit up and down moves in the DOW.

Daily triple digit gyrations typically signify higher levels of volatility. Displayed below is a Volatility index chart. As evidenced in the chart, the VIX has risen higher from lower support levels. But the VIX is still stuck below its 200-day SMA.

Investors should recognize that the current range-bound trading environment is happening during what is historically a low volume trading season. From my perspective it seems like every day financial news feature experts who proclaim a market top. My recollection is these bearish reversal claims have constantly been publicized over the past four years. Whether it is bank earnings, currency prices, interest rates, central bank policies, global-economic news, stock valuations, etc. they have offered the ammunition for a market correction.

Every time we start getting a plethora of market top predictions, the market has proved them wrong. A lot of market watchers complain about the Fed artificially inflating equity asset prices. Even if this is true, the score still counts. In reality the reason for higher values is basically irrelevant. If you buy low, and sell high, you make money, period.

Eventually, stocks will break out of the current trading range and there will be an opportunity for long directional bets. Until the trend changes doing credit spreads to generate income generally works well in the current environment.

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