August 17, 2017

Market Moves Deeper Into Oversold Territory. Now at Historical Extremes.

Did you see the drop this afternoon? the S&P (SPY) moved lower $3 in just under an hour. Wow! Now the S&P is just below the 1460 area at 1458.95. Everyone knows that 1460 is a very strong area of support and given the extremely oversold nature (almost an understatement) of the market I would expect to see a bounce in the next day or so. Moreover, Monday and Tuesday are seasonally very bullish.

The one thing that would lead me to believe we could see another push lower is the gap in the S&P (SPY) on 4/16 that was never closed. I have a feeling we could close that in the next week or so. That being said, the underlying SPX is quickly approaching our short put strike and an adjustment needs to be made. We are hoping to get a bounce over the next day or so that would allow us to make an adjustment without much harm, but at this point we just want to make sure our basis are covered. Of course, a Black Monday could be devastating to the strategy, but given the already extremely oversold nature of market I have my doubts. However, stranger things have happened so nothing would surprise me at this point.

Will this be another good buying opportunity or will the situation continue to get worse? This is the question on every trader’s mind right now and I can tell you it wil be an anxious, long weekend for many traders/ hedge funds/ etc. Monday will definitely be one to watch and could be give us a very good indication as to where we are headed over the next few months.

I plan on writing another post sometime this weekend once I have a chance to digest some of the information that was released. Stay tuned!

Overbought/Oversold levels for July 27, 2007

  • SPY – 10.9 (very oversold)
  • IWM – 5.2 (very oversold)
  • DIA – 14.8 (very oversold)
  • QQQQ – 14.9 (very oversold)
  • GLD –  25.6 (oversold)
  • OIH – 34.4 (neutral)

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