This week's VDX updates verify the technical consolidation pattern constraining the current markets.
Each of our 3 studies is locked at the zero line and the VDI + and VDI- lines reveal the total lack of commitment from either buyers or sellers. This point was emphasized by this week's SPY volume which hung right at 50 million shares/day, less than 50% of normal volume.
So how do we trade in this market with the expectation of an eventual breakout or breakdown?
1. Delta neutral ....our default SSO/SDS model made money 2 out of 5 day this week with zero draw.
2. Vertical spreads such as straddles. The problem with the current low volatility markets is that premium decay is high relative to potential returns.
3. Breakout setups. Reviewing our Bollinger Band studies from earlier this week it's clear that TLT responds well to bands 2 SD wide. So we set up conditional entries 1.5 SDs from the midline both up and down....this is also known as a bracket order. Just be sure to put a fixed loss and trailing stop or any such orders because reversals back to the midline can eat up your capital.
These are just 3 ideas. I'm confident thoughtful traders have many more strategies appropriate to their risk comfort level.
If you haven't looked the recent M baskets studies they can be found here and here.