August 17, 2017

Post Options Expiration Fallout?

After the best advance since 1939, the market has continued its trod higher right into the middle of October and most importantly, options expiration. As expected the advance has once again, pushed the many of the ETFs I trade into a short-term “overbought” state (mentioned in subscribers’ weekly report).

Historically, the trading session (and the week for that matter) following options expiration is overwhelmingly bearish. The odds increase dramatically when the market is in an overbought state. This means that since the market held up this past week (as it usually does pre-expiration) the probability of a move lower on Monday increases substantially.

I currently have an SPY and TZA positions and will be looking at FXE early next week ( as usual subscribers will receive my real-time trade alerts) as the RSI (2) has moved above 96 which typically means that a short-term reprieve is near.

Couple all the above with the fact that we are entering a historically weak seasonal period (next seven out of eight days are historically negative) and I think that the bears could be a happy bunch next week. There is some very strong support at the $116.75 level and again at around $115 on SPY, but if we can break those two levels I would not be surprised top see a move that takes us back down to the 9/13 gap at $111.02. It sounds like a large move, but in reality it is only a 5.6% move. A move that would be not unheard of after the enormous gains over the past month or so.

This could be a decent short-term play. As we all know nothing is certain in the world of trading. A disciplined approach with an appropriate stop-loss goes a long way to your success as a trader. Always define your risk before entering a trade. I should also note that seasonal tendencies have not held up well as of late.

Remember, opportunities are made up easier than losses. So if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, this is a marathon not a sprint.

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