MTM Options Trader Newsletter - Practical Uses for Average True Range

[image](=) [image] This Week in the Market After starting the week with a little hope, the barrage of bad news canceled any party plans market participants may have had. On Friday, the Consumer Price Index (CPI) came in hot at 8.6% year-over-year (above expectations of 8.2%). Core CPI (excluding food and energy) came in at 6%, above the 5.9% figure forecasted. This led to a gap lower Friday, putting the S&P 500 down nearly 5% this week. Technically, Friday’s red candle was a confirmation candle, closing below the all-important 20-day moving average for the 2nd day in a row. Of note, this was also below the psychologically important “par” of $400 a share. While some folks try to shrug off the main, and bigger, 8.6% number, only to focus more on the core figure, it seems the smart money says they shouldn’t. Social security checks and I bonds are indexed based on CPI, thus more money then gets pumped into the economy. Further, job seekers (and job holders) may use the higher inflation to get a raise. And the fire gets fueled. Inflation gets harder to tame. This week is a biggie, numbers-wise. The Producer Price Index (PPI) and the FOMC announcement will be sure to move markets. Buckle up, my friends! Jun 14: Producer Price Index Jun 15: MBA Mortgage Applications Survey Jun 15: NAHB Housing Market Index Jun 15: Retail Sales Jun 15: FOMC Announcement Jun 16: New Residential Construction Jun 17: Triple Witching [Read Our Blog]() Practical Uses for Average True Range Average True Range (ATR) is one of the most practical indicators and can be used in many ways. Some of the ways I employ ATR is to compare recent ranges with longer-term or benchmark averages. In this way I can judge whether current volatility is high or low. Spreads tend to pay off when current ATRs are lower than the long-term ones. Setting Targets Another use for ATR is to set profit targets. Prior to breakouts or acute vertical moves markets will often go through a series of days and even weeks with below average ranges and volume. These congestion patterns often take the shape of a rectangle (flag) or a pennant (triangle). I believe the time it takes to develop these patterns may be directly related to the length of the breakout. For example, if a flag or channel pattern is 5-to-7-day longs and the upper barrier is breached the rally should extend about the length of an average week range. Theoretically, the longer it takes for a pattern to take shape the farther the trend will extend. [Continue Reading ...]() MTM Watchlist John returns back for Group Coaching. Here are some names Dan has been looking at: SPY – We have a pivotal week from a technical standpoint. Will momentum from breaking below the 20-day moving average continue? Or will we fill the gap created Friday? That with the fundamental drivers and lots of options all expiring this Friday can create some opportunities. CHWY – This stock has severely underpriced volatility considering how much the stock has been moving. Dan talked about long straddles on it during Group Coaching. He took profits on some, and is letting some ride. It still looks like a viable play at this point. NVDA – This one might need a day or two to establish whether its downward momentum continues. But if it reaches the $160 support level, it could be a nice call buying opportunity—that is IF implied volatility remains as underpriced as it currently is. Otherwise a put credit spread ought to do the trick. This stock sold off more than most among the chipmakers. It could prove to normalize back with the pack by heading a little higher—especially if the broad market catches some wind in its sails to the upside. [image]( We're honored to have Dan's Book Trading Option Greeks listed as one of the [Best Options Trading Books]() by New Trader U. [Buy Now on Amazon]( The strategies in this newsletter are for educational and informative purposes only. All information disclosed in this newsletter should not be considered complete in its entirety. Market Taker Mentoring, Inc. will not be held responsible for changes, oversights, errors or omissions. Dates, prices, news and other information may not be accurate. Please verify all information before trading. You alone are responsible for your own investment decisions. Options involve risk and are not suitable for all investors. Before trading options, please read Characteristics and Risks of Standardized Option (ODD), which can be obtained from your broker; by calling (888) OPTIONS; or from The Options Clearing Corp., 125 S. Franklin St., Suite 1200, Chicago, IL 60606. No statement in this newsletter is intended to be a recommendation or solicitation to buy or sell any security or to provide investment or trading advice. Traders and investors considering options should consult a professional tax advisor as to how taxes may affect the outcome of contemplated options transactions. Copyright Market Taker Mentoring, Inc. 2008 - 2022. All rights reserved. Reproducing or redistributing this content is a violation of federal law. [image] If you do not wish to be contacted via email, you can unsubscribe using this link: [Unsubscribe]( Unsubscribing from email notifications DOES NOT cancel your class, subscription or recurring payments. We recommend that current students do not unsubscribe from email notifications. If you unsubscribe from email notifications, you will not be notified on how to access the classes or subscriptions in which you are enrolled. Market Taker Mentoring, Inc. PO Box 117 Frankfort, Illinois 60423 United States