With fewer than 950,000 contracts traded during the regular session, Monday's E-Mini S&P 500 futures (Es) auction turned out to be an incredibly quiet affair. Even an early morning rebound that failed to gain acceptance above Friday's 2374.75 closing level, and was promptly sold back beneath the session's 2372.75 opening print and volume weighted average price (VWAP), couldn't generate sustained activity among day timeframe sellers. In a nutshell, Monday's downward-slanting rotational price action appeared to be nothing more than random action within a market desperately searching for new leadership or a catalyst with staying power.
Several readers have requested updated volatility figures on the major-index ETFs, so let's run through those real quick. For those who don't know, I measure volatility via average true range (ATR). And for our purposes today, I am taking a 20-day simple moving average (SMA) of a 50-day ATR. By stretching our look-back period on the ATR to 50 days, my goal is to provide a figure that's more relevant to those trading over an intermediate timeframe.
Applying a 20-day SMA to a 50-day ATR of the S&P 500 ETF (SPY) , we get a reading of $1.41. Based on Monday's $236.77 closing print, that amounts to approximately 0.6%. To give that figure a bit more perspective, the lowest percentage reading during 2016 was 0.76%, during late September and early October. So based on an ATR measure of volatility, the SPY is trading more than 20% beneath the lowest level of volatility recorded during 2016.
Like the SPY, the PowerShares QQQ Trust (QQQ) is also trading at very low levels of volatility. The current 20-day SMA of a 50-day ATR reading on QQQ is 0.84, or approximately 0.68%. The lowest reading I have from 2016 is 0.87%, and that was triggered between the last day of September and first couple of days of October.
The iShares Russell 2000 Index ETF (IWM) , despite being trapped in a near perfectly horizontal pattern over the past few months, currently offers traders the greatest amount of consistent volatility. The 20-day SMA of a 50-day ATR of the IWM is $1.65, or 1.23%. And that's well above 2016's low reading of 1.1%.
The takeaway from these anemic volatility figures is that short and intermediate timeframe traders have to avoid chasing price momentum, and remain as selective as possible in their day-to-day trading. When volatility is high, opportunities can be found around every corner. When it's low, however, we must approach the market with more care, as over-trading and chasing price momentum can quickly lead to mounting losses.
Moving on to Tuesday's Es auction, we'll begin the session with a focus on 2371.25. If the Es holds above that figure, day timeframe traders will be expected to begin targeting 2375.25 to 2376. As price gains acceptance above 2376 (Friday's value), our next targets becomes 2382 and 2387.50.
A break of Monday's lows puts us back on track for a slide toward 2360 and 2354.50.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my Twitter feed @ByrneRWS