August 20, 2017

How I’m Playing the Surge in High Beta Stocks

Over the past several weeks we have seen the S&P 500 (SPY) and Dow (DIA) push lower while the higher beta indexes Nasdaq 100 (QQQ) and Russell 2000 (IWM). As you can see in the table below both ETFs are now in a short-term overbought state. There are a few ways I might play the overbought readings in IWM and QQQ. First, I could buy a put. This would, of course, be a fairly risky trade as it would be very directional with duration working against the position. I would prefer to see a reading above 85 before I truly pursued buying a put. Moreover, due to the directional nature of the trade I would keep my size smaller than a normal spread position. Furthermore, along with an overbought reading above 85, I would prefer to see my … [Read more...]

Bulls Beware…Major Indices at Historic Extremes

Yes, the market has rallied in the face of, well, almost everything. While I have my doubts about the sustainability of the current rally I'm not going to give you the reasons why...because it's only my opinion and as we all know when using a statistical approach towards investing/trading opinions are essentially useless. The Russell 2000 (IWM), S&P 500 (SPY) and Dow (DIA) have recently pushed to all-time highs which has pushed our High-Probability, Mean Reversion indicators to extreme overbought states. Moreover, if you look at the RSI over various timeframes you will quickly notice that most of the ETFs I follow are pegged right now. Typically, when this time of reading occur we see a decent decline short-term decline going … [Read more...]

It’s All About the New Year’s Gap. Will it Close? If so, When?

The small caps,  as seen by the Russell 2000 ETF (NYSE:IWM), remain the most resilient of all sectors within the market. The Dow (DIA), S&P 500 (SPY) and Nasdaq 100 (QQQ) have pushed back into neutral states. Since the upside gap on 1/2 the major benchmarks have struggled to advance. The large gap underneath seems to be weighing on the market which makes me more apt to lean towards the bearish side until the gap is resolved. Of course, as we all know we could see another push towards the upside, but again, with out-of-the-money credit spreads I can create a margin for error that allows me to be absolutely wrong in my assumption, yet still profit from on the trade. It all comes down to probabilities. If we are able to go out to the … [Read more...]

Market Remains Range-Bound – Options Strategy Remains Patient

The anticipated bounce occurred today. However, I would not get overly excited because the rally could be short-lived. The S&P 500 ETF (SPY) gapped higher at the open today and never moved lower to close the gap. I would expect to see a close at $128.24 in SPY before the market is able to make any ground. We are already nearing an oversold state in my shortest-term indicators, so it could be a tough few days for the bulls. Although, as long as SPY is able to hold the March lows I think the market could be okay. When I say okay, I mean a move back near the top of the established trading range - $125-$137. If SPY pushed through strong support at the $125 level then I think we could se a waterfall decline that could take us as low … [Read more...]

Excited for the Week Ahead

For several weeks I have warned of the following: June is also a Triple Witching month. Four times a year stock options, index options and index futures all expire at the same time. The performance of the overall market immediately following June’s Triple Witching has been absolutely horrible in years past. The week after has seen the Dow down 15 out of the last 17 years. Watch to see if the market is overbought going into the week following Triple Witching. If so, this could have the potential for a decent short-term fade to the downside. Seasonality alone is (in almost every case) not a reason place a trade. However, when compared with the current state of the market at the time the seasonal tendency arrives, the probability of a … [Read more...]