Gap, Chop, and Trap

___________________

We are in the familiar scenario over the past few months of a huge gap at the open, followed by the market going nowhere for most of the session, concluding with possible final hour fireworks. While the jury is still out on today’s close, the first two elements of that scenario have most certainly been fulfilled today, as you can see on the 5-minute chart of the SPY below. I still maintain that trying to actively trade this type of a market is a mistake, given the randomness of the price action, followed by traders who succumb to the multiple traps abound.

Specifically, those “traps” refer to traders chasing moves at the open, only to find out that had already missed the move, in either direction. This type of a market is seemingly designed to harshly punish those traders trying to compensate for a move they just missed by chasing it aggressively. Remember that if this truly is the formation of an intermediate-term bottom, then by definition we will have plenty of time to play along for the ride. However, entry points do matter, and so do odds and probabilities. The idea is to trade with an edge, not to just trade because the market looks good on paper with impressively green statistics. I am seeing some decent progress by the bulls, but as I wrote last evening there is more heavy lifting to be done before I am going to start betting heavily again.

___________________