August 19, 2017

Typical Post-Expiration Weakness Coupled with Strong Overhead Resistance

The S&P (SPX) continues to struggle with overhead resistance. Today marked the third straight reversal day and could be a early warning sign of things to come. The large-cap Dow (DIA) and S&P (SPY) remain in an overbought state so short-term weakness would not come as a surprise.  

My thoughts from the last few days remains the same, “a short-term reprieve looks likely this week as market performance during post-options expiration is historically weaker than normal. Couple the seasonal tendencies with an overbought market and very strong overhead resistance and you can see why we should expect to see the market struggle over the short-term (1-5 days).”

Our current condor position looks very good. We were able to sell the condor spread for $.90 and the spread is already showing $.65. Not bad with only a few days into the June expiration month. As we all know anything can happen, but as I have stated repeatedly the summer months are, in my opinion, the best time to look at implementing an Iron Condor strategy.

I typically like to take a neutral stance with a 140 point range which allows for a 70 point movement on both sides in the SPX. This means SPX can move roughly 4.5% to the upside/downside over the next four weeks before the strategy fails.

Our range this month is 140 points in the SPX. AS long as the underlying SPX stays within 1580 and 1440 we will make roughly 9% for the expiration month. With June expiration cycle only lasting four weeks with a holiday in there we like our chances with such a large range.  

Overbought/Oversold levels for May 23, 2007

  • SPY –  70.6 (overbought)
  • DIA – 74.5 (overbought)
  • IWM – 63.6 (neutral)
  • QQQQ – 56.0 (neutral)
  • GLD –  41.9 (neutral)
  • OIH – 70.3 (overbought)

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