August 24, 2017

Excited for the Week Ahead

For several weeks I have warned of the following:

June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June’s Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside.

Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. Always be aware of the market’s seasonal picture.

The market entered the week near a short-term overbought state and this morning’s gap to the upside and continued push led to an official short-term overbought state. As a result I entered into the following trade:

IWM Trade

So far the trade is up 15%, but I am still down a bit on my SPY (-11.5%) and QQQQ (-14.3%) trades from late last Friday. I was anxious to get into a short position late last week (after exiting my long calls) and in hindsight I probably should have waited until the gap from 6/4 closed in IWM (which I predicted would happen for the last few weeks – oh well). Well, the gaps closed from 6/4 today while pushing into a short-term overbought state, so again, I decided the prudent thing to do was to purchase a few IWM puts. The other factor that led to my decision was the unclosed gap from this morning which has yet to close in IWM.

So, currently I have three positions (10 puts each) in IWM, QQQQ and SPY. The 1105 area was once again tested today and failed and the 1087 area also failed late in the day which means that we could witness a nice decline heading into options expiration. If not, I expect that next week the bears will rear there ugly heads. Obviously, my hope is that this market plummets over the next few days, but as I always say patience pays. Remember, this is a marathon. and not a sprint.

Note – my stop for all three trades is the highs established today.