Market Nearing Short-Term Overbought Extremes

IT’s late so I am keeping it short tonight.

The market pushed higher today and is now nearing a short-term overbought state.

China, Gold Miners and Real Estate have all moved into short-term overbought extremes so I would expect to see a short-term reprieve in those three ETFs over the next 1-3 trading days. All three ETFs have RSI (2) readings that exceed 97.5 so the probability of a short-term reprieve is high.

Tomorrow morning brings the ADP report so I we could see a very good opportunity to enter a position. If the market gaps higher, preferably one on the ETFs I mentioned then I would expect to see a trade in the strategy tomorrow. With that being said, subscribers stay on the lookout for an email, tweet , etc.

High-Probability, Mean Reversion Options Portfolio Up Another 7.2% in May

High-Probability, Mean-Reversion Options Strategy Update

We only have a few trading days left in the month of May.

The High-Probability, Mean-Reversion Options Strategy is up 7.2% for the month while the S&P 500 (NYSE: SPY) is down $0.64 or -0.48% in May. The month follows a stellar 10.5% gain in April. So far, the strategy is up a respectable 40.2%  since its inception back in November.

What I like the most is that the returns are based on only 13 options trades. When compared to other options strategies on Collective2, the High-Probability, Mean-Reversion strategy outperforms on every measure and we are only in the market an average of roughly 8 days a week with an average of 2 trades a month.

You can see all of the results yourself here.

Daily Options Update

Exciting, exciting, exciting.

I have decided to add a few more of my favorite options strategies to the newsletter, including an income-based strategy. A premium-based strategy will offer a wonderful way to further educate all of you on options. I plan on using a variety of credit spreads - bullish, bearish, iron condors, etc.. It just depends on what the market is offering us in options premium. Of course, the spreads will be based on my High-Probability, Mean-Reversion indicator.

This will obviously create more value for all of you loyal subscribers out there. I can’t wait to get started.

Daily Market Research

• Morgan Stanley (NYSE: MS) recommends an options trade
• LinkedIn (NYSE: LNKD) - Welcome to the world of options!
• Weekly Options Are Here to Stay 

Summary

Range-bound trading persists. I am beginning to feel like we could see the markets move sideways for a few more months. Are the summer doldrums already upon us? How long can SPY stay in this range of roughly $126 to $137? The question is, while I continue trade using the HPMR strategy, how can I take advantage of this range bound movement. You guessed it – credit spread! I will discuss this further in Weekly Options Report. 

Until then,

Andy

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Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

Options Strategy Advances – Up 40.2% Since Inception

Yesterday, I mentioned the potential for a trade in one of the major benchmark ETFs.

The trade became a reality this morning after I took a position in the Nasdaq 100 (QQQ) shortly after the opening bell. You can see all of the trades and how the strategy has performed here. I was able to buy QQQ Sep11 56 calls for $2.71 and sold the calls almost near the high of the day at $2.88. Not the biggest return by any means, but it did amount to a respectable 6.3 percent return on the trade. It was enough to push the overall return of the strategy 3 percent to 40.2 percent. The win ratio is an astounding 93.3 percent (hard to believe I know) and the Sharpe ratio is 1.63. I would imagine that once the statistics are updated on my third-party monitoring site, Collective2 the Sharpe ratio will kich up 1.8 or so. I certainly would like to see it move above 2 over the next 4-6 months.

There are stil a few spots left in my subscriber pool, so give my newsletter and the strategies I use a try. You might find that they are a great way to add higher beta to yout portfolio.

Currently, the only ETF that I would consider taking a position in is India (EPI). The ETF h moved into a short-term extreme oversold state with a RSI (2) that supports the move. If the ETF moves lower at the open we could have back to back trades, an rare occurrence indeed.

Until then.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial.

Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

Options Trade Imminent

An options trade is imminent.

The High-Probability, Mean-Reversion strategy is showing short-term extremes in all of the major benchmarks and the RSI (2) is confirming with my proprietary indicators. With that being said, I would expect to see a trade in one or more of the major market ETFs tomorrow.

I have been getting a lot of requests to follow other ETFs in the strategy. While I would absolutely love to increase the number of ETFs on the list, the liquidity in the ETFs requested do not meet my requirements. If the options liquidity is too low, the bid/ask spread in the underlying ETF is too wide.

For example, if we have an option that displays a bid/ask spread of $2.00 – $2.50 then the market maker is essentially buying an option at the ask for $2.00 and selling at the bid for $2.50 for a nice $0.50 gain per contract. That equates to $50 a contract. I prefer a bid/ask spread no less than $.10 wide and even that is almost too big for me to take a trade. I want to trade in the most efficient market possible and taking a potential 25 percent hit right off the bat seems ludicrous. Would you do that with a stock? Of course not. Then why would you do this with an option.  I will discuss this topic futher tomorrow.

For now, I want to concentrate on my trade set-ups for tomorrow. Subscribers stay tuned for alerts through email and twitter.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial.

Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

Major Market Benchmarks Reach Short-Term Oversold Reading

Keeping it short tonight. I am overtired and in need of some sleep.

The S&P gapped lower at the open this morning and proceeded to trade in a sideways fashion for the remainder of the trading day. We are moving ever closer to closing the gap from 4/20. The S&P 500 (SPY) moved to a low of around $131.60 which is roughly $0.25 away from officially closing the gap.

I would not be surprised to see the gap close tomorrow followed by a sharp push higher. However, I do think that the next push higher will eventually fail and push the S&P (SPX) below major support at the 1250 area. Pure speculation of course. Short-term moves are my cup of tea.

If the market happens to move lower tomorrow at the open, I would suspect that a trade will be signaled in one of the major benchmark ETFs (QQQ, DIA, SPY, IWM). Subscribers be on the lookout.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial.

Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

Kindest,

Andy

Short-Term, High Probability Mean-Reversion Indicator – Range Bound Trading Persists

As I have stated over the past few days, a short-term bounce would occur and today the bounce came to fruition. Nothing too exciting, and if you have been reading my commentary over the past few days you know that I think we are still due for a sharp pullback that, in my opinion will occur after the May expiration cycle comes to a close.

I would be ecstatic to see this market push even higher and into a short-term overbought over the next few days. A short-term extreme in any of the ETFs I follow in the HPMR strategy would be wonderful for me and for my subscribers. We have all been waiting patiently on the sidelines for several weeks looking for the right opportunity to enter a trade. But, as I always say patience pays.

There are quite a few indicators that have pushed into bearish territory along with a few studies that I have looked at over the past few weeks.

One such study is from Nautilus Capital an institutional research firm that I find to be very savvy in the type of research they present. They recently stated that cyclical bull markets within secular bears have tended to average just 26 months, with an average gain of 85%, while cyclical bears within secular bears have averaged 19 months, with steep average losses of -39%. Market cycles tend to be truncated during secular bears, averaging a full bull-bear cycle duration of just 45 months (3.75 years), for a full-cycle average gain of just over 12% (3.3% annualized). Of course, fundamentals still tend to grow faster than 3.3% over the cycle, resulting in valuations that are lower at each bear market trough, even if prices are higher in absolute terms. I recognize that outcomes like these are unpleasant and inconvenient to contemplate, but denying the possibility doesn’t make anyone a better investor.

We are currently in the 26 month of a cyclical bull in a secular bear and I think the 39% drop is not too much of a push. A 39% loss would bring the S&P back down to close both of the gaps I discussed yesterday and would fall right in line with my prediction over the 9-12 months.

However, this wil lnot stop the HPMR strategy from making money. The strategy can make money in any type of environment and has proven so since its inception.

Healthcare is currently the only ETF that I follow in a short-term extreme state. The RSI (2) has also confirmed along with the other proprietary indicators that I use so subscribers be on the lookout for a potential alert tomorrow.

Have a great night!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial.

Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

S&P Moves Ever Closer to Closing 4/20 Gap and “The Option Strategy”

The S&P 500 (SPY) pushed lower today to come ever closer to closing the gap from 4/20. SPY moved fell to a low of $132.12 before bouncing to close the day over $1 higher at $133.17. It would take a move to $131.35 for the gap to officially close.

My stance is that we shall see a series of gaps close this summer beginning with the 4/20 gap, followed by the 12/1/10 gap at $118.01 with the potential of a close of the 9/1/10 gap at $104.41 the bears truly take control. I do not expect the latter gap to close this summer, but it would not surprise me to see the gap close over the next 12 months.

For me, it truly doesn’t matter. I enjoy speculating (like everyone else) where the market is going to go, but no one really knows. I do not have the magic crystal ball, no one does.

As an options trader I try not to play this fool’s game. Various options strategies allow me the privilege to rid myself of the exactness of picking stocks that only make money if they move higher. While this is enjoyable for some it does not make the most sense to me as an investor or trader.

I prefer to allow probability to lead my investment journey. I know what to expect, I know the odds and I can create risk/reward scenarios that meet my risk tolerance for any given scenario. This is why I am an options trader.

No one said it was easy. Understanding options at their core isn’t easy.  This is why so many people avoid them at all cost. They think options are too risky. And they are right, in some instances. Options can be used in overly aggressive ways. But I keep it simple.

While I use a variety of income-based options strategies through selling premium (more advanced options strategies), my favorite strategy is the HPMR. It allows me to be as aggressive as I want to be. It gives me total control of the trade, well almost.  So far the strategy has worked for me and since I introduced the strategy to my newsletter subscribers it has worked for them. Check out the results on my third-party monitoring site.

I hope to cap my newsletter service soon at 100 subscribers. I am 75 percent of the way there and hope that by the end of the year I am at capacity.

I don’t market, my service has gained traction through word of mouth. It has been a slow process, but it has worked. My belief has always been that if the strategy doesn’t work than I should just stop using it – unlike other newsletter services who pay out the you know what to continually market their sites and successfully trap investors into buying into their service, only to see their accounts dwindle over the following months. It is the treadmill cycle of the newsletter industry - I can’t tell you how many times I have witnessed this over the years. 

But unlike many of the other newsletter services I choose not to take this path.  As a result, I can proudly state that I have a loyal and thoughtful group of like-minded investors who know that patience is what it takes. They support the strategy and its mission. As I always say, this is a marathon and not a sprint.

I hope some of you take this to heart and give my strategy a chance. Let me prove to you that the strategy is worthy of your long-term commitment. If anything let the performance speak for itself. It has so far.

Anyway, as for today’s potential trade, well, I decided to stay away. Both EWY and EPI have incredibly wide bid/ask spreads which make me a bit uncomfortable. So much so that I might have to take them off my ETF list.

S&P futures are higher as I write this tonight, so I expect to see a bounce tomorrow. The bounce could last until options expiration passes, but once it does I expect the bears to move back in to push this market lower. My hope is that we see some extremes soon. Until then I will be patiently waiting on the sidelines aloowing the set-up to move towards me and not the other way around.

Have a great night!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial.

Also, for those of you who live on Facebook. You can access my daily info on the social network as well. Just click on LIKE.

Short-Term, High-Probability Mean-Reversion Indicator – South Korea (EWY) and India (EPI) Hit Short-Term Extreme

The market continues to trade in a range bound fashion.

The S&P 500 (SPY) pushed back down to strong support at the $133.00 level – a level that was created by the 4/20 gap. My guess is that we close the gap over the next 5-7 trading days. With so many ETFs in an oversold state it would not surpise me to see a short-term bounce followed by the plunge that takes the S&P 500 (SPY) down to the $131.35 level to close the gap from 4/20. In an ideal world it would happen immediately following options expiration as the day following options expiration is historically bearish.

As for the High-Probability, Mean-Reversion strategy there are two ETFs that have moved onto my radar – South Korea (EWY) and India (EPI). Both have hit a short-term “very oversold” state so I would expect to see a short-term bounce over the next 1-5 days. That being said, I want to remind subscribers to my newsletter service to be on the lookout for a potential alert over the coming days through email, twitter, etc..

We have been waiting patiently over the last few weeks and I think our patience could pay off here. With a win ratio over 90% and a return of 37.5% since the inception of the strategy back in November patience has proved to be a valuable virtue. Check out the performance results.

I also wanted to thank everyone for the kind words reagrding my daughters latest illness. It is great to know that I have built such a loyal and thoughtful crew of readers over the past five years. Thank you!

Patience, Patience, Patience

First, I would like to thank all of you for your well wishes. Macey is feeling better than ever. Good enough that we can journey down to Boston to check out the Museum of Science and a few other notable sights.

As for the market and the strategy, there has not been any true extremes this week. I would expect to see the 4/20 gap close next week which would definitely move a few of the ETFs I follow into a short-term extreme state.This is when patience is a virtue. Don’t trade just to trade. Stick to the guidelines. Don’t push it. Let probability work for you. Yadda yadda.

Anyway, I hope all of you have a wonderful weekend and I look forward to bringing you the High-Probability expiration Report next week and hopefully a few trades.

Kindest,

Andy

Today’s Post

I just wanted to let all of you know that there will be no post tonight. My daughter is sick for the second time in a little over a week so I haven’t any time to focus on the numbers. I hope to be back tomorrow with the updated numbers.

Kindest,

Andy

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