August 17, 2017

The week of options expiration is upon us

Options expiration is upon us and as it stands all of our strategies, including our new SPY Diagonal LEAPS strategy, should finish up the cycle doing quite well. We still need to roll our October SPY short positions to November and will most likely do that over the next day or two. As I have stated numerous times over the past few weeks this is probably the most important aspect of the strategy so stay tuned to see how we negotiate the rollover. Theta has really kicked in as it is up to $44 a day. So far the strategy has made $1,194 or 6.0% over the last four weeks. We are very encouraged by the prospects of this strategy and how it allows us just another way to diversify our stock options strategies. Tomorrow brings "tech Tuesday". … [Read more...]

Time to roll, exhaustion gap and much more….

The sharp decline off the overbought levels on Thursday was followed by a decent bounce today. However, technically speaking it looks as though the "damage is done".  Yesterday's open looks like a typical exhaustion gap. An exhaustion gap usually comes at the tail end of a series of gaps during a rapid rise in the underlying, in this case the major benchmarks. The gap led to a new high in the S&P (SPY), but only for a few hours. Towards the end of the trading day SPY declined sharply to close the gap and close near the lows from the prior two trading sessions.Normally, this would not be much of an eye opener, but the force at which it came is alarming and must not be ignored. The sharp decline led to short-term oversold readings in … [Read more...]

Mr. Probability

Once again Mr. Probability was on our side. As expected the market took a bit of a breather today. The market gapped up today and then traded in a tight, sideways manner before investors locked in gains at record highs and consequently pushed the market lower. The gap up on 10/4 came close to filling today, but the S&P (SPY) managed to hold off the late day decline and bounce higher into the close. I am still on the sidelines (at least in my short-term trading) looking for a good risk/reward trade. As I have reported numerous times that while shorting "overbought", preferably "very overbought" measures are often difficult to gage because markets can remain in an overbought state for days and sometimes weeks. I did a study, … [Read more...]

Market remains overbought

Not much has changed. The major benchmarks that we follow remain in an overbought situation and a short-term pullback is still anticipated. The next two days are quite bullish on a seasonal basis according to the Stock Trader's Almanac. That being said, I am more comfortable, at least over the short-term, with the short side of the market. The market, more specifially the S&P (SPY) has vacillated in a fairly tight range over the last four days and typically when we see range-bound trading a sharp move is right around the corner. With the market overbought, an unclosed gap lingering, and the curse of the October 7's in play (discuss tomorrow)...well...I think you see where I am going. SPY Diagonal LEAPS Strategy Our new stock … [Read more...]

Market in an overbought state once again….where to now?

Daily Commentary The market traded sideways until the much anticipated Fed Minutes were released at 2:00 EST. Once the minutes were released the market surged higher and never looked back. Now the major market benchmarks are back into an overbought to very overbought state. The Nasdaq 100 continues the push higher, but is near an extreme. This is exactly the set-up that we mentioned in our newsletter (paid subscribers only) this past weekend. Typically, when an indice reaches this type of extreme we see a short-term pullback. I admit, the recent surge has been frustrating for my trading. I am not a momentum trader so the recent surge has tested my patience. While frustrating, I remain patient because I know over the long haul I … [Read more...]

Divergence in the major benchmarks

The broad market index (S&P) gapped lower today today and never looked back. The push lower moved the major indices we follow back in a neutral state. Interestingly enough, the tech heavy Nasdaq 100 (QQQQ) surged higher creating a short-term divergence that will most likely settle out over the coming days. The move lower was to be expected given the reasons I stated in the blog Friday. Tomorrow and Wednesday bring bearish seasonal days and then the market ends the week with two historically bullish days. This is one of the few weeks of the year, according to the Stock Trader's Almanac, that the market experiences four days with historically significant bullish/bearish seasonal tendencies. As I always say, I never use seasonal tendencies … [Read more...]

SPY Diagonal LEAPS strategy off to a great start! Short-term pullback in sight? ETF Extremes watch…

The market rallied mightily today with nary a pause. Typically, the market will fade a bit, if only to fill the upside gap, but not today. The market moved steadily higher throughout the afternoon and then pulled back a tad at the close, but that was most likely a result of traders taking some money off the table ahead of the weekend.  Now all of the major market benchmarks that we follow are back in an overbought to very overbought state and the shorter-term measures that we follow have reached an extreme state. Typically, when the market reaches this type of an extreme we see a short-term (1-5 days) fade in the indices. Furthermore, sharp moves after payroll reports tend to fade back a bit in the coming days. In addition to the … [Read more...]

Tight-range typically precedes a sharp move

Daily Commentary The S&P (SPY) traded in a fairly tight range today. Typically when we see this type of tight range-bound trading we often get a sharp move once the market decides which direction to take it. Seasonally, the market is moving into a sohrt-term (1-3 days) bearish phase and this is approaching at a time when the market is in an overbought state. Going forward, at least over the next few days I have to side with the bears. While, I always say that seasonal conditions are never a sole reason to place a trade, when coupled with other technical factors they often sway the probability of a set-up. In this case that would be a move lower. As I stated yesterday, nothing is guaranteed in trading, particularly over the very … [Read more...]

Overbought/Oversold and Strategy Discussion

Daily Commentary  Two weeks ago I began following the overbought/oversold levels of 21 new ETFs. As reported at months end I would move all them besides the major market indices (SPY, QQQQ, IWM, and DIA) into the insider's page page for paid subscribers only. Paid subscribers will now have daily access to these numbers, so check the insider's page daily for the overbought/oversold numbers. We will also post how we use these numbers in our trading and this will be archived in the Insider's page for easy reference. SPX Iron Condor Strategy The SPX Iron Condor strategy made 9.3% during the September expiration period and if all goes well we should make around 7.5% during the October expiration period. The recent market … [Read more...]

Diagonal LEAPS Strategy Begins

We added our intial positions in the SPY Diagonal LEAPS strategy today in our test account (paper trading). We plan on following this strategy for most likely several months until our subscribers and community blog participants can gain a better understanding of how the strategy works. We hope this will be as educational as it is profitable. We sent out to our subscribers the basic trading rules and how and why we chose our positions. For the most part, our guidelines can carry over for use with any ETF. Our official trading guidelines will only be privy to paid newsletter subscribers. All totals reflect commissions through the standard Thinkorswim commission schedule. Sell to open 2 SPY Oct07 152 calls Buy to open 2 SPY Dec09 125 … [Read more...]