For the fourth day in a row, yesterday markets generated gains to leave indices on the verge of new highs - erasing the losses of last week. However, yesterday's gains were small, leaving markets vulnerable to attacks from shorts.
The NASDAQ and NASDAQ 100 finished with bearish black candlesticks; black candlesticks at swing highs are often associated with market tops. Shorts can look to take advantage with stops above the recent highs, with a target of last weeks lows (for starters).
The Russell 2000 finished yesterday with a closed above its 50-day MA after managing to reverse intraday selling. However, unlike the NASDAQ, the small-cap index hasn't yet clawed back the losses from last Wednesday's sell-off.
Meanwhile, the S&P closed the breakdown gap with a relatively straightforward advance. Technicals have recovered, leaving only the MACD on a 'sell' trigger. While other indices edge more in favour of bears, the S&P might surprise with additional upside. If so, today has a strong chance of delivering those new highs.
While one can only best guesstimate what will happen later today, the tight action in many of the indices does open swing trade opportunities. These can be done by entering a trade on a break of yesterday's high/lows with a stop on the flip side of Tuesday's high/low - or by buying an option straddle.
Markets are primed for another big move, the question is which direction will it take. The option straddle perhaps offers the best cover, but may not be suitable for everyone.