June 26, 2017

April tendencies and the current state of the market

Today’s price action was practically identical to yesterday’s. The trading day starts out strong and fades until mid-day where it hits what has proved to be fairly strong support (1412 area on SPX) and then begins the climb back up into the close. As I stated yesterday, the price action seems to be the typical end of the quarter window dressing especially given the lack of volume during the end of the day ascent.

Now the market enters the historically strong month of April. The Dow has seen 6 straight years of gains during the first day of April. Furthermore, the first trading day of April has finished higher 9 out of the last 12 years and the trading day prior to Good Friday  has been higher in the S&P 9 out of the last 11 years with an average return that exceeds 0.5%.

I will be watching closely to see if the seasonal bias lives up to its historical tendencies. Premium in the Iron Condor position has come back nicely with the move back towards the middle of the range and the time decay, but a sharp move next week could quickly cancel that out.

I was hoping to see more of a fade and hold move towards the support which would have brought the major benchmarks we follow (stated below) into an oversold state. This would have been an ideal setup, but “ideal” is often not realistic. I will continue to patiently wait on the sidelines until a high probability setup occurs. I still have the month long Iron Condor position on which should bring in a little over 14% this month, but as always I will be happy to see a tradeable edge occur so that I can take action in the ETF Extremes. Currently, our measures are in a neutral state and our proprieatry shorter-term measures are neutral as well. As I always say, “it is a marathon, not a sprint”. All it takes is one trade. Be patient.

As I have stated repeatedly over the history of this blog, seasonality should never be the sole reason to place a trade. However, when coupled with technical analysis it can be a wonderful tool, so being aware of the historical seasonal conditions can certainly give you an extra edge when considering trading a position. I think we could be in one of those instances where being aware of the seasonal picture could be advantageous.

Overbought/Oversold levels for March 30, 2007

  • SPY – 50.4 (neutral)
  • DIA – 53.4 (neutral)
  • IWM – 56.7 (neutral)
  • QQQQ – 41.4 (neutral)
  • OIH – 52.3 (neutral)
  • GLD – 57.4 (neutral)

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Have a great night!