Bulls continue to amaze, but for how long?

The recent rally has more legs than I anticipated. However, the four day rally has pushed the indices near an extreme level so the probability of a shorter-term reprieve increases that much more. Of course, with the Fed release tomorrow who knowsa what to expect. Certainly, the market looks stretched at this point, but over the short-term we could easily see a push into “very overboguht” territory if the bulls like the report tomorrow.

I still think there are quite a few short-term bearish indicators rearing their ugly heads and I can’t help but be alarmed. The problem tomorrows swings will be wild and I do not plan on gambling as to which side will win. Patience, patience, patience. One thing is for certain the market will always offer more opportunities and riding it out on the sidelines is a position that can often save investors/traders unneccesary frustration and capital. 

Even with the sharp move to the upside our Iron Condor position is still 5% away from the short call strike. The adjustments that we made after our last loss seem to be working well during this volatile market. the increased volatility has allowed us to use an extremely wide range (300 points) and yet we will still make 7.9% if the underying SPX (S&P 500) stays within our chosen range. We will continue taking a more conservative approach with this strategy, choosing wider than normal ranges in an attempt to take 5%-10% out of the market per expiration cycle. Previously, we were using narrower ranges that brought in more premium (capital), but in the process we had to sacrifice our win ratio (probability of success).

Overbought/Oversold for December 10, 2007

S&P (SPY) - 76.5 (overbought)

Russell 2000 (IWM) - 75.1 (overbought)

Dow (DIA) - 79.5 (overbought)

Nasdaq 100 (QQQQ) - 74.7 (overbought)

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