August 19, 2017

What a horrible way to start 2008!

What a great wat to start out 2008 with one of the worst months in many, many years.  Today marked the worst pre-options expiration performance in over 15 years. Losses during a one month time frame are reaching historical proportions. One thing  is for certain, I am very discouraged by the outcome today and what looks like a max loss in the SPX Iron Condor for the January expiration.

Unless Big Ben comes in with a rate cut tomorrow moring we will experience our first max loss in the SPX Iron Condor strategy since we went to using an extra-wide range. This is why I talk about the importance of position sizing in the newsletter.

SPX was 13 points above the short out strike at the close yesterday. It actually opened the day higher and then simutaneouly the Philly Fed and Bernanke came out at 10 EST and absolutely crushed the market in a matter of minutes.

The whole thing has me rethinking the validity of using Iron Condors on a month to month basis. Inevitably months like this will come around and absolutely crush the market. When I added the position in late Decemeber SPX was trading around 1495. 155 points (or about there) or -10.4% later the market is trading around 1340 losing close to 40 points the day before our SPX options expire. Again, this is why position sizing particularly when using any type of Iron Condor strategy is important because losses will inevitably occur. I will discuss the trade in detail in the upcoming Expiration report out this weekend.

The 200-day moving-average has turned lower which essentially means that we are in a bear market. How low will we go nobody knows, but things are certainly looking bleak at the moment.

Over the short-term the major indices have once again moved into “very oversold” territory. Typically this means a sohrt-term reprieve is around the corner. We must remember that when in a bear market oversold conditions can continue to move further into oversold conditions and not see the typically bounce that would normally occur during a bull market.

Overbought/Oversold for January 17, 2008 

S&P (SPY) – 14.1 (very oversold)

Russell 2000 (IWM) – 18.2  (very oversold)

Dow (DIA) – 16.6 (very oversold)

Nasdaq 100 (QQQQ) – 20.1 (oversold) 

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