April 26, 2017

Nearing Oversold. Will We Get There?

Three out of the four major indices are bordering on oversold. However, the tech-heavy Nasdaq 100 (QQQQ) conntiues to push higher and is now at the opposite extreme of the other major indices as it is bordering on an overbought state.

One note of interest, around this time I usually discuss the post-expiration bearishness that typically occurs the first two trading days following options expiration. Well, not this time. OVer the last 10 years, the trading day following October options expiration has been higher 10 out of 10. Wow! A push into oversold territory coupled with the aforementioned seasonal tendency could present a nice risk/reward setup.

Over the last few months I have been battling with bouts of frustration, particularly in the ETF Extremes strategy. We have had several close calls, as many who read this blog know, but to no avail. The win ratio and cumulative totals speak for themselves so it is unwise to alter the strategy. Remember, this is not “THE” strategy. What I mean by this is that the strategy, while extremely successful, should be looked at as another strategy to diversify your overall portfolio. Like any strategy it has its pros and cons and at this point the only con that we can think of is the recent lack of signals. Again, this is why we diversify our options strategies, so that we can take advantage of various market conditions. Directional strategies, non-directional strategies, and volatility strategies should always be considered when creating a well-diversified basket of options strategies.

That being said we continue to wait for a better risk/reward setup in the ETF Extremes strategy . A move into oversold territory will definitely push the strategy closer to a signal.

Our Iron Condor strategy has reaped its second straight month of gains. Position sizing is a key factor in this strategy. When you have a high-probability strategy , like how we implement the Iron Condor, you can expect to have a very high win-ratio. It is during the periods of inevitable losses that allow you to make gains in an Iron Condor strategy on an annual basis. After integrating a few changes, mostly adjustment guidelines, the future of our Iron Condor strategy looks bright.

Once again, we decided to hold onto our short positions in the SPY Diagonal LEAPS strategy. By waiting until tomorrow, when we absolutely have to adjust, we have basically squeezed out all of the theta. OF course we will inform you of all the rollover details tomorrow.The strategy has had a wonderful first expiration cycle. As it stands the first four weeks have witnessed a gain $1,225.50 or 6.1% in our test account. A great first expiration cycle to say the least. We will have a thorough discussion in this weekends Expiration Report (subscribers only). Stay tuned.

Overbought/Oversold for October 18, 2007

S&P (SPY) – 36.9 (neutral)

Russell 2000 (IWM) – 39.1 (neutral)

Dow (DIA) – 32.6 (neutral)

Nasdaq 100 (QQQQ) – 68.5  (neutral)

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com