Tuesday, May 05, 2009

A Look at a Difficult Trading Day

Most of the day, the S&P 500 e-mini Index (ES; blue line above) stayed below its opening price and its volume-weighted average price (VWAP; pink line). The market broke below its opening price range, but then rallied steadily back to VWAP as selling pressure dried up. An attempt to break out to new lows around 13:50 CT was quickly rejected and we rallied in a choppy way back to VWAP and eventually through it. From 11 AM CT on, relative volume dropped significantly, and with it volatility. In all, we operated within a roughly 10 point range from open to close.

I thought the best trade of the day was playing off the double bottom for a move above VWAP, but notice how choppy that trade was and how difficult it was to hold into the target. With VIX falling to the 33 area, it will be important to track relative volume through the day, as these slowdowns produce very challenging trading conditions.