Anticipated short-term bounce occurs. What next?

The anticipated bounce off very oversold levels occurred today. The move was sharp, yet it still was unable to bring the major benchmarks above 50 which is often a sell signal for many traders. I expect to see the push higher continue until weeks end, but I am still somewhat leery about the sustainability of the move. I would not be surprised to see the market test the recent lows and potentially break through those levels. We shall see soon enough.

The Vix moved lower today, losing 18.7%. Ideally, I would like to see the Vix back near 20 or at least hover around  the 15-20 range as premiums will be significantly higher as a result. This will make options selling strategies, like our SPX Short Iron Condor, much more attractive. The increased premium allows us to choose between keeping our current 100 point range and taking in more premium as a result or widening our range to further increase our chances of the underlying expiring within our chosen range. The latter would aim to bring in the same amount of premium since we initiated the strategy in our newsletter three months ago.

Overbought/Oversold levels for March 6, 2007

• SPY - 40.6 (neutral)
• DIA - 40.5 (neutral)
• IWM - 38.5 (neutral)
• QQQQ - 38.2 (neutral)
• OIH - 46.8 (neutral)
• GLD - 40.0 (neutral)

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