August 20, 2017

Short-term outlook remains bearish

The short-term bearish signs continue to pile up. Last week I mentioned several short-term bearish tendencies as the market moved into post-expiration.

  1. The week after June Triple-Witching has seen the Dow lower 15 out of the last 17 years.
  2. Strong resistance overhead (1540 in SPX) 
  3. Historical tendency for post-expiration weakness

Now we have another to add to the list.

The market traded in a fairly tight range during the latter part of last week and continued the trend today. Today the S&P (SPX) experienced one of the tightest trading ranges of the year. Going forward, a period of narrow, range-bound days, similar to the last three trading days, does not bode well for the market over the short-term.

It would be nice to see an overbought confirmation (to go along with the other bearish signs), at least intraday, in the S&P to increase the bearish edge. A test of the 1540 area should bring the underlying SPY close to an overbought area and could make for a nice short play. However, a sustained move above 1540 could negate any meaningful move to the downside. The S&P needs to move below 1530 and hold the move before for a short-term correction can be considered.

Certainly the S&P feels pent up in this area (1530-1540) and the longer it trades in a range the sharper the move once the range is broken. My guess is by the close Wednesday we will see the market lower. Wednesday of this week brings a seasonally bearish day with the S&P trading roughly 38% higher historically. The Dow (DIA) is even worse at approximately 33%. Remember, we are only speaking of a short-term move (1-5) days.

Overbought/Oversold levels for June 18, 2007

  • SPY –  63.8 (neutral)
  • DIA – 63.0 (neutral)
  • IWM – 63.5 (neutral)
  • QQQQ – 72.1 (neutral)
  • GLD –  51.5 (neutral)
  • OIH – 76.7 (overbought)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service.  We currently follow 2 stock option strategies and one stock-based strategy in our investment newsletter. All of our strategies use the major benchmarks as the underlying. Furthermore, you will receive two free months of our investment newsletter when you purchase our White Paper. Check it out!

Watch and learn how we implement our strategies.

Have a great night!