Before I move into today’s price action and what the next few trading days look like I would like to reiterate the overly bullish seasonal conditions that the market has entered.
The last three days of October and the first three trading days of November are overwhelmingly bullish. Going back over the entire history of SPY (12 years), not once did the aforementioned time frame finish lower.
Furthermore, the Stock Trader’s Almanac has the six days marked with a bull symbol. This signifies favorable seasonal conditions with the S&P finishing the days higher 66.4%, 81.0%, 61.9%, 71.4%, 66.7%, and 61.9%. It is the longest string of “bull symbol’ days in the must-have reference.
The market traded in a fairly tight range today and will most likely continue this type of price action until the Fed rate announcement late Wednesday. Once the rate announcement is released I expect to see volatility pick back up. Obvious right? The best case scenario, for my trading style, would be a sharp move to the upside that pushes the current overbought/oversold levels into “overbought” to “very overbought” territory. If price action plays out similar to the aforementioned then I expect to see the probability lean towards the short-term bearish camp later this week. Until then I am still patiently waiting on the sidelines.
Ahh yes, the New SPY Diagonal LEAPS strategy that we created a mere five weeks ago is up 6.97%. Over the same period the underlying SPY is up only 1.1%. We continue to follow the strategy in the community blog and in greater detail for our paid subscribers in the newsletter. Interest in the new strategy has been overwhelming and may cause us to limit the number of subscriptions that we allow. If all goes well, we will introduce the strategy for auto-trade over the next few expiration cycles.
Overbought/Oversold for October 29, 2007
S&P (SPY) – 65.3 (neutral)
Russell 2000 (IWM) – 56.7 (neutral)
Dow (DIA) – 64.4 (neutral)
Nasdaq 100 (QQQQ) – 61.6 (neutral)
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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com