August 24, 2017

Short-term Correction

First I would like to apologize for my lack of posts on Friday and moreover for my expected post on Sunday.

The market traded in a fairly tight range today until around 2:00 EST, when the anticipated short-term correction occurred. Once the overbought conditions gave way the selling was fierce. This is typical when we see a market this overbought. The question is how will it last? Over the past few months any dip was quickly propped back up by the bulls. Could this time be different?  

The S&P (SPY) and Nasdaq 100 (QQQQ)  are back in a neutral state other than the Russell (IWM) which reached oversold status and the Dow (DIA) still sits in an overbought state. The small-caps have been the weakest among the major benchmarks during the latest trend move. I think this could be an early indication of what is to come. As I said last week the market is nearing the “Sell in May and Go Away” phase. Yes, the summer doldrums are near and what we typically see is a range-bound market. After the gains we have seen I would not be surprised to see this type of situation occur.

The pullback has helped our current condor position as the SPX now sits right in the middle of our 135 point range. If all goes well we should make close to a 7% profit at options expiration.

My guess is that we could see a follow-through on today’s decline, but it should not last too long. I think the market will trade in a range until Friday’s unemployment numbers are released.

Overbought/Oversold levels for April 30, 2007

  • SPY –  50.4 (neutral)
  • DIA – 72.1 (overbought)
  • IWM – 29.2 (oversold)
  • QQQQ – 54.9 (neutral)
  • GLD – 40.7 (neutral)
  • OIH – 80.9 (very overbought)

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Have a great night!

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