Unsustainable gains ahead?

June 4, 2007 · Print This Article

Unsustainable gains ahead? For the third day the market traded in a fairly tight range. There seems to be tug of war around the 153.50 area of SPY. Currently the bulls have the edge, but that could change quickly. Our short-term indicators are nearing an extreme as seen below. We haven’t seen all of the benchmarks (including OIH and GLD) line up like this in quite some time. In almost every case, the short-term (1-5 days) looked bleak as the S&P struggled to move higher over the next few days.

Watch to see how the market reacts around the 153.50 area in SPY and 1530 in SPX. A move below this could lead to a decent leg lower.

Premium continues to get sucked out of our SPX Short Iron Condor position. The position is currently worth$.40, $.50 less than we had originally sold the Condor spread. We are still over 40 points away form the short call strike so we still feel comfortable with our current position. A move to the downside this week will certainly diminish the premium in the condor spread. A sharp move lower could allow us to avoid the risk of expiration week by exiting the trade for a nice profit. Of course, by exiting early the profit would be slightly less than the max gain,but it would also eliminate all risk to the position.

Overbought/Oversold levels for June 4, 2007

SPY - 75.0 (overbought)
DIA - 79.4 (overbought)
IWM - 79.1 (overbought)
QQQQ - 75.2 (overbought)
GLD - 71.7 (neutral)
OIH - 75.0 (neutral)

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