May 22, 2017

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...]

New Heights…But For How Long?

As we all know by now, the major market benchmarks have pushed to all-time highs. The Dow (DIA) and S&P 500 (SPY) continue to frustrate those of us who sell premium for a living, but given the short-term overbought state I remain comfortable with my current positions. If anything, the current overbought state allows for more opportunities to sell bear call spreads...especially when looking at the longer-term chart below. There is no doubt that the pot odds side with the bears at the moment. Even if we are wrong in our directional assumption, like we have been over the past few months, by using a high-probability strategy a margin of error is inherently created. Basically, you can be wrong, yet still have a profitable trade..that … [Read more...]

Short-Term Reprieve Makes An Appearance….

I am going to keep it very short tonight. The S&P 500 (SPY) took its largest tumble of the year today after reaching an extreme overbought state. My recent directional assumptions haven't played out as planned, but after today all of the positions in my two options selling strategies are in very good shape. In fact, I should be able to take a few profits if we see a short-term continuation of this reprieve. And that's the beauty of credit spreads. You can be completely wrong in your directional assumption and still come out on top. It's all about the probabilities...creating a large enough margin of error (through the selling out-of-the-money credit spreads) to absorb a continuation of the move you are fading. But now that … [Read more...]

Still Range-Bound Near the Top

Keeping it short tonight. After the worst day since November, the market was able to get back on its feet and rally back near the highs set a few days ago. I am still comfortable selling bear call spreads above the recent highs and the chart below from my esteemed colleague and friend Tim Knight shows why.   As you can see we are touching a long-term trend line and given the recent price action around this level I expect to see a short to intermediate-term pullback. But the most important aspect of this long-term trend line is the fact that I am able to sell options well above this level to give the margin of error that creates a high-probability trade. Yes, it's that simple. If you haven’t, join my Twitter … [Read more...]

Further Declines Ahead?

We finally saw a break in the market today. On the 26th I stated a market reversal looks imminent.  The decline today has the market back at that pivotal area. If that breaks we could see $146.50 in DIA and possibly a fill of the New Year gap. The gap fill is going to happen, the problem is we have no idea when. I am not one to play guessing games with the market. An assumption with a high-probability strategy wrapped around it  is more my speed...and the current market could be giving us some opportunities going forward. We now have a solid top or area of overhead resistance, which allows those of us who sell options premium a decent guideline over the short- to intermediate-term. Selling options above the current overhead … [Read more...]

A Market Top is Near…At Least Over the Short-Term

As I stated late last week, "a reversal looks imminent." Couple my stated reasons last week, with extreme short to intermediate-term overbought readings in the major market benchmarks and you can quickly see why I think a correction, at least over the short-term, is near. Check out the short-term extremes at the bottom of the page. Tomorrow, could be the day with Bernanke up to bat.   If you haven’t, join my Twitter feed or Facebook. Also, I have officially opened up my strategies to the public.  If you are a believer in a statistical approach towards investing please do not hesitate to try one of my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, … [Read more...]

A Reversal Looks Imminent

Is the rally over? Or will we see a continuation of the current rally? If you believe in mean-reversion, it's hard to deny the overbought extremes that currently reside in the market. Just look at the SPY chart below.                                 As you can clearly see, over every time frame the major market benchmark has reached an extreme overbought state. If the SPY chart isn't enough evidence to at least make you question the sustainability of the current rally, just take a look at the VXX … [Read more...]

Several ETFs in Short-Term Extremes

Most of the ETFs I follow for the High-Probability, Mean-Reversion indicator have pushed into an overbought to very overbought state. But, what is most interesting is the extreme overbought readings over the shortest of time frames I follow. For instance, readings in IWM and SPY are in the high 90's...an extreme we don't often see in the benchmark ETFs. As a result, we are finding more and more opportunities for bear call spreads. The only downside is the low implied volatility., but one way to combat low volatility, particularly if you are expecting a quick fade of the current trend is to take use a bear call spread with a lower probability of success, say in the 60-70 range. This will allow you to bring in more premium and if a move to … [Read more...]

January Options Expiration is Upon Us

The market continues to soar. Have you seen the new all-time highs in the Russell 2000 (IWM)? But the small-caps aren't the only sector roaring right now, Consumer Discretionary (XLY) , Healthcare (XLV) and Real Estate (IYR) are all in a short-term overbought state. As a result, all of them are perfect candidates for out-of-the-money bear call spreads. I will talk about a trade or two tomorrow on the blog, but today I wanted to let everyone know that I will be sending out invites to my strategies over the next few days. Yes, it has been a long time coming...finally it's here. If you have already contacted me about my strategies, don't worry, you will have first dibs. Those who have not contacted me I will be sending out the … [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...]