thanks for sharing your experience.. i have seen it before too but never really watched it .. may watch it before opex and see how it works.
today was an obvious distribution day and nq looked weak all day.

i also agree with your risk reward idea below. if sp fails up here.. and nq never breaks out to new highs.. i can see a push all the way back down to bottom of channel.. great risk reward. i will take a shot up here somewhere.

fb goog aapl intc gild msft all still have lower highs… only amzn has managed a higher high so far… these are the top weighted on the nq

Well, today, so far, seems to be sideways, going nowhere day.

alshaw – While your call for a blow-off top is certainly a possibility, I just don’t see much evidence either fundamentally or, more importantly, technically to support it. What I see, besides a breakout in only one of many important broad indexes in the US stock market, is divergent highs on all major US stock indices & the one important index that did break out to new highs (I don’t pay the DJIA any attention) was a breakout on below average volume.
Trading is all about positioning with the risk to reward is in your favor. First off, keep in mind that these bearish rising wedges are on 30-minute charts which indicates short-term pullback most likely lasting for just a few days or so (although they could trigger a much more powerful sell signal by wiping out the SPX breakout to an ATH). As such, those setups could be used by a short-side trader to short the expected but relatively minor (~2%) pullback OR for a long-side, bullish trader to wait to add more exposure when/if those pullback targets are hit.
Back to the R/R thing. While the near-term trend is clearly bullish right now, that would mean that shorting the market has an increased rate of failure however, should the breakout in the $SPX fail, the potential downside move in the market could be huge as fewer events in technical analysis are more bearish than a failed breakout. Therefore, one could short the breakdowns of these wedges, set their stops around entry to guarantee a breakeven at worst (or better yet, a stop 1-2% above the recent highs) which, although might not be the highest probability entry, has a tremendous profit potential, should the recent breakout & the SPX fail with conviction & the market take the next big plunge lower. I have to agree with Gundlach on this one: ‘Big money’ to be made if stocks fail to stay near current highs: Gundlach

@upordown I don’t trade options frequently & although I’ve been familiar with max pain for years, I only glance it occasionally so can’t really speak with any high degree of certainty to the accuracy of how well it predicts prices. I will say though, that on balance, it seems to do a pretty decent job of indicating whether a stock (or index ETF such as SPY or QQQ) will move up or down (or stay flat) leading into OpEx but personally, I only bother to check the max pain numbers within a few days to expiration as the open interest can & will often change quite a bit from where it was weeks before expiration. Maybe some more experienced options traders can chime in on their experience using max pain as a predictive tool?

most options expiring worthless makes sense. what is your experience with its accuracy?

I think max pain was an instructor I had in college….or my first boss…

thanks for posting this.

@GetItRiight – Max pain on Friday’s QQQ puts is currently 109 vs. my pullback target of 108.82 (coincidentally or not, exactly where the Bias is) while SPY max pain is currently 209 with a bias of 208.32 vs. my min. pullback target of 210.83. More info on Max pain & bias here: http://www.optionistics.com/i/strike_pegger