August 17, 2017

Market Holds, But For How Long?

Given the magnitude of the short-term bounce, the market has done a remarkable job staying afloat. However, I think the short-term holding pattern could be coming to a close over the short-term (1-5 trading days). Why? well ,there area few reasons why I think a test or at least a short-term decline is near.

First, going back 20 years in the S&P, every bounce off a major low (if we indeed hit one recently) was brought back to reality. Each instance saw the major benchmark, S&P move lower to test the recent low. Many have compared the price action recently to that of the correction that began in late February. The market bounced for several days, but ultimately came right back down to the established. My guess is this type of action will play out again. 

Okay, on to my second reason. Next week brings some fairly bearish seasonal conditions. According to the Stock Trader’s Almanac the “end of August has been murderous 6 out of the last 10 years” with the “average loss for the last 5 days: Dow -2.6%, S&P -2.3%, and the Nasdaq -2.1%”.

Couple the price action of the market recently (it just feels heavy to me) with the oh so convenient seasonal bearishness that lays ahead and I think we could see a test or at least a short-term decline in the near future. 

Recent history does not necessarily mean that it will repeat itself again this time around, but given the aforementioned I have to go with historical precedence.

The VIX has also plunged since the panic set in last week. Check out the follwing link: Watch the VIX and the S&P 500

Again, due to the 5-week cycle in September expiration I will establish a position next week. At the same time I will also establish a similar position in SPY so that we can compare how the two react to the market on an individual basis.

Also, next week I will begin the SPY LEAPS strategy which I will discuss in great detail in the daily commentary section. I will utilize the paper trade tool in Thinkorswim to accurately report all of the details including greeks, etc. Stay tuned!

Overbought/Oversold for August 23, 2007

SPY – 63.9 (neutral)

IWM – 55.0 (neutral)

DIA – 59.9 (neutral)

QQQQ – 61.0 (neutral)

GLD – 44.3 (neutral)

OIH – 63.9 (neutral)

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Andrew Crowder,