SPX continues to roll. Short-term reprieve looks likely.

April 16, 2007

Another surprising move today in face the face overbought conditions and the February highs of 1460. While our ETF Extremes continues to chug along taking advantage of extreme scenarios in the market our SPX Short Iron Condor strategy is in a bit of a pickle, (to put it mildly). The gap up today and strong advance early in the day never gave us time to get out of our position. Typically, during expiration week if the underlying, in this case SPX, moves within 5 points of a our short strike (call or put) we immediately exit the position.

www.kirkreport.com.

The one positive for our short call strike: there are quite a few technical indicators that have reached an extreme which typically signals that a short-term reprieve is in the near future. Today’s gap is one such indicator and our overbought/oversold levels have reached a “very overbought” state. Furthermore, our shortest-term proprietary model has reached an extreme. When both reach this type of extreme we typically see a short-term decline over the next few days.

Overbought/Oversold levels for April 16, 2007

SPY - 87.4 (very overbought)
DIA - 82.9 (very overbought)
IWM - 86.1 (very overbought)
QQQQ - 75.1 (overbought)
GLD - 86.6 (very overbought)
OIH - 83.4 (very overbought)

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Will the S&P see 1460 next week

April 13, 2007

Mr. Market was once gain able to push the major indices higher today. Three out of the four major indices are now in an overbought state and another push higher will certainly drive them in an extreme state. The market should struggle with the 1453-1455 area and certainly at the February highs of 1460. Typically, the market fails during the initial retest of the recent high and without nary a pause during the recent rally I expect to see a pause at 1460 and a short-term correction shortly after. The recent move has no doubt been strong, but it has been on fairly low volume which is another reason why I think the market could see another correction in the near future. A move higher over the next week, especially towards expiration, will mostly likely to enter a short-term play that favors a short-term decline. I would like to see our short-term proprietary measures move slightly higher and a move to 1460 should cause those measures to enter an extreme. I will keep you updated.

The push higher in the S&P (SPX) has put the short call strike in our Short Iron Condor strategy in jeopardy of being breached. With four days left until SPX settles we are only 8 points away. As much as I hate to take off a position for a loss if the market continues to push higher without a short-term reprieve (1-2 days) I will be forced to take off the position for a loss. With a win ratio that is typically in the mid to high eighties losses are expected, which is why capital preservation techniques are so important when using an Iron Condor strategy.

Next week brings the week of options expiration which is typically flat to slightly bullish. As the market enters the latter half of April we should expect to see some weakness. As the Stock Trader’s Almanac states”April prone to weakness after tax deadline” and given the recent rally and potential retest of the February highs I think the historical tendencies could live up to the historical billing. We shall see soon enough.

Overbought/Oversold levels for April 13, 2007

SPY - 78.9 (overbought)
DIA - 74.5 (overbought)
IWM - 76.4 (overbought)
QQQQ - 64.7 (neutral)
GLD - 81.6 (very overbought)
OIH - 79.1 (overbought)

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www.crowderinvestments.com

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Will the market continue to push higher over the short-term?

April 12, 2007

I stated yesterday that “there seems to be decent support at the 1438-1440 area and strong resistance above at the 1450 level. I expect to see some chop in this range. Expiration week is next week which typically is flat to slightly bullish so we could see a retest of the 1450 area although I expect to see another failure at this level.”

Today the market opened lower and pushed down to 1434 where it immediately found support and bounced hard. So hard that it practically recovered the entire loss from yesterday. When I stated that we could see the 1450 area again I wasn’t expecting it to occur in one day. Could today’s action just be a dead cat bounce or will the market continue to push higher and retest the recent highs around 1460?

The open will most likely be influenced by the PPI report due out tomorrow. A positive inflation report will most likely cause an upside gap in the indices which are typically faded especially when the indice gapping is in an overbought state. Tomorrow could prove to be very interesting.

Overbought/Oversold levels for April 12, 2007

SPY - 72.3 (overbought)
DIA - 64.4 (neutral)
IWM - 66.7 (neutral)
QQQQ - 63.0 (neutral)
GLD - 67.5 (overbought)
OIH - 78.2 (overbought)

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ETF Extremes and the Iron Condor

April 11, 2007

The market finally took the short-term reprieve that we expected. We were able to take advantage of the expectations mentioned over the last few posts in our ETF Extremes strategy.

After the sharp rally last week our many of the indicators we follow signaled a buy alert on Monday. As a result, we bought 10 Jun07 SPY 145 puts (SFBRO) shortly after the open on Monday for $2.85. The extreme overbought situation coupled with the gap up in the S&P on 4/3 (that has yet to close) increased the probability for success in the trade. We mentioned several others in the daily commentary (blog) section of the site.

Today our indicators signaled a sell and as a result we sold the Jun07 145 puts (SFBRO) for an average price of $3.01, resulting in a 5.6% gain on the trade. Moreover, we did not want to risk losing our profits ahead of the fed minutes that were scheduled to come out at 2 PM EST.

We initially set our target price for $3.10 and were partially filled. However, the market bounced and we decided to lower our price target to $3.00. We were filled immediately and immediately following our fill the market moved back to $3.10 momentarily and then proceeded to bounce back up towards $2.80. After the fed minutes the bears quickly took control and the market sold-off. If I had my crystal ball in front of me I would have obviously held on, but given the situation and the risk involved (if the fed minutes were construed positively) I feel confident in the decision. I made it a policy early on that I would never complain about a profit. There will always be another opportunity to fry a bigger fish in the near future.

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Now the major benchmarks are back in a neutral position and there is what looks to be decent support below. We have a few more market moving economic reports out this week so we could see a choppy market over the next few days. The short-term reprieve that occurred also helped out our current SPX Short Iron Condor position. SPX is now 21 points below (1.4%) below our short call strike and another leg down or a few days of chop could lead to an opportunity to take some profits off the table. We will just have to wait and see what the market offers.

There seems to be decent support at the 1438-1440 area and strong resistance above at the 1450 level. I expect to see some chop in this range. Expiration week is next week which typically is flat to slightly bullish so we could see a retest of the 1450 area although I expect to see another failure at this level.

SPY - 61.7 (neutral)
DIA - 52.3 (neutral)
IWM - 52.8 (neutral)
QQQQ – 49.7 (neutral)
GLD - 72.2 (overbought)
OIH - 66.5 (neutral)

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A few reasons why a short-term correction looks highly probable

April 10, 2007

Not much has changed since my last post. The market trickled higher again today in the face of several short-term bearish indicators. The S&P has been higher for five straight sessions and the Dow has been higher for 8 straight sessions, a feat not seen since early 2003. I have included a portion of my post from yesterday as I think it is worth repeating.

The following are just a few of the reasons for my short-term bearishness (1-5 days).

1. Upside gap on 4/3/07 in SPY that has yet to close.

2. Short-term proprietary indicators have reached an “extreme” state.

3. SPY has lived in “overbought” to “very overbought” the last five sessions.

4. Current rally has occurred on low volume.

5. Narrow trading range that often precedes a sharp move.

Tomorrow could be quite interesting. At 2 PM EST the fed minutes will be released which has recently caused the market to move. I think if the report is positive and the market moves higher we should start to see some decent resistance at the 1453-1455 area. This will obviously extend the current “overbought” state of the S&P (SPX) and will mostly likely lead to a false breakout at least over the short-term.

The recent high which occurred on 2/20/07 was 1459.70 although the broad market index was able to push as high as 1461.57 intraday. Typically, the market struggles with the initial approach towards the recent high and I expect to see a similar situation this time around. The short call strike on our SPX Short Iron Condor is 1460 so we are certainly closer than I prefer to be with 7 trading days left until settlement. The next few days should be very interesting.

Overbought/Oversold levels for April 10, 2007

SPY - 83.9 (very overbought)
DIA - 78.6 (overbought)
IWM - 77.9 (overbought)
QQQQ - 76.0 (overbought)
GLD - 76.0 (overbought)
OIH - 79.6 (overbought)

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Current Low-Volume Rally Showing Short-Term Weakness

April 9, 2007

The S&P continued the slow and steady march upward today and is currently on a 5-day winning streak. Furthermore, the last six out of seven trading days have been positive. I spoke last week about the seasonal post holiday hangover that typically occurs the trading day after Good Friday. Obviously the seasonal bias did not live up to its historical billing today, but the market is still in an extreme territory so I remain steadfast with the expectation of short-term bearish move over the next few days. The probability of a short-term move lower is too high to ignore at this juncture.

The following are just a few of the reasons for my short-term bearishness (1-5 days).

1. Upside gap on 4/3/07 in SPY that has yet to close.

2. Short-term proprietary indicators have reached an “extreme” state.

3. SPY has lived in “overbought” to “very overbought” the last four sessions.

4. Current rally has occurred on low volume.

5, Narrow trading range that often precedes a sharp move

According to the indicators we follow a short-term decline looks highly probable over the next few sessions. Of course, as we all know, nothing is certain in the world trading. We rest our decisions based on probabilities and while the chance of success may be heavily weighted in your favor there is always a slight chance for failure. This is where sound money management techniques come into play but I will save that discussion for another post.

Overbought/Oversold levels for April 9, 2007

SPY - 82.4 (very overbought)
DIA - 81.4 (very overbought)
IWM - 73.2 (overbought)
QQQQ - 69.8 (neutral)
GLD - 64.2 (neutral)
OIH - 64.0 (neutral)

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

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Extreme overbought levels often precede a short-term correction

April 5, 2007

This could cause a gap up to recent highs which if that scenario actually occurs I think will be quickly faded.

Now that the gap from the last correction has closed I expect to see the gap from earlier this week close next week. Plus, our proprietary shorter-term overbought/oversold levels have reached an extreme overbought state which often precedes a short-term correction.

Overbought/Oversold levels for April 5, 2007

SPY - 80.7 (very overbought)
DIA - 79.6 (overbought)
IWM - 70.3 (overbought)
QQQQ - 77.6 (overbought)
GLD - 80.2 (very overbought)
OIH - 71.6 (overbought)

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Have a great night!

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Short-term bearishness looms

April 4, 2007

All of the major indices managed to push slightly higher which pushed them closer to a ”very overbought” state.

As I have mentioned over the past few posts the trading day prior to Good Friday is often bullish. However, I would not be surprised to see the seasonal tendency fail this time around. If the major indices do manage to move higher the gains should be limited by the strong overhead resistance that exists in all of the major benchmarks. Watch the 1440 level in the S&P (SPX).

Additionally, the short-term bullishness should end (at least over the short-term) as the market moves into next week. Historically, the trading day following Good Friday has been overwhelmingly bearish with less than a 30% of the days ending positive.

With all of the short-term bearishness that looms ahead I would not be surprised to see our ETF Extremes signal a trade towards the beginning of next week. I have patiently waited on the sidelines for roughly a month. We actually had a similar situation last year, but even with the lengthy period between trades we still ended up with over a 42% gain on the year. This is why we do not force trades in this particular strategy. We patiently wait for highly probable set-ups to arise and then take advantage of what probability of success. This is just one reason why the strategy had a 100% win ratio last year and only one losing trade since its inception. As I always state this is a marathon, not a sprint.

Overbought/Oversold levels for April 4, 2007

SPY - 77.2 (overbought)
DIA - 76.8 (overbought)
IWM - 76.8 (overbought)
QQQQ - 72.7 (neutral)
GLD - 80.2 (very overbought)
OIH - 68.6 (neutral)

Watch and learn how we implement our strategies.

Have a great night!

Filed Under Crowder's Daily Market Commentary ·

Strong Overhead Resistance while in an Overbought State

April 3, 2007

After a rough few days I am finally back. I would like to thank all of you for the kind and thoughtful emails

The gap higher today and the continued move higher has moved the major benchmarks into an overbought state. Furthermore, the S&P has reached a point of fairly strong overhead resistance at 1440. Since the spike higher on 3/21 (fed policy announcement) SPX has struggled with this area. Given the positive seasonal tendencies this week (mentioned in several posts over the past week) I would not be surprised to see the market chop sideways for the next couple of days. However, I think the short-term bullishness should end (at least over the short-term) as the market moves into next week. Historically, the trading day following Good Friday has been overwhelmingly bearish with less than a 30% of the days ending positive.

If I see a continued chop sideways over the next couple of days while still in overbought territory and an unclosed gap I will be seriously considering taking a position over the next few trading days. The probability of a short-term move lower is too high to ignore at this juncture. Stay tuned.

Overbought/Oversold levels for April 3, 2007

SPY - 75.8 (overbought)
DIA - 75.0 (overbought)
IWM - 71.6 (overbought)
QQQQ - 68.1 (neutral)
OIH - 67.6 (neutral)
GLD - 59.6 (neutral)

Watch and learn how we implement our strategies.

Have a great night!

Filed Under Crowder's Daily Market Commentary ·

No posts for the next few days

April 2, 2007

There was an unexpected death in the family, so I will not be posting to the site for the next couple of days.

We could have a decent set-up in the ETF Extremes strategy if the market lives up to its historical billing and advances throughout the week. As I have mentioned in prior posts this week is fairly bullish and the day before Good Friday is typically bullish. However, the day following the holiday is quite bearish so we will be watching to see if the market follows the historical seasonal trend. If so, we could see the major benchmarks move into a overbought to very overbought state which would create a perfect set-up for the ETF strategy.

Kindest regards,

Andrew

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