Markets Lower For The Week, S&P 1300 Holds

Broader Market Weekly Performance:
Dow -1.05%
S&P -1.28%
Nasdaq -2.57%
Russell -2.69%
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MARKET UPDATE:
This week all the major indices put in in reverse and headed toward their 50 Day Moving Averages. Negative outlooks for oil supplies and geopolitical instability fueled the selling.

Here is a quick rundown of the week's events:

Pros:
--Oil prices soften
--Day of Rage = Day of Nothing
--Strong bid for US Treasuries
--Retail Sales strong

Cons:
--Gas prices continue to rise
--Initial jobless claims rise
--Higher US trade deficits spurs cut in Q1 GDP forecast
--Euro debt crisis back in the headlines

It was a wild week in the markets. Thursday's pullback was spurred by China's unexpected trade deficit and concerns they have over-tightened. China is fueling the world's economic growth and any suspected slowdown will have wide reaching effects. Also contributing to Thursday's decline was PIMCO's dumping of 100% (yes ALL) of their US Treasury holdings.

Commodity prices softened this week as a result of the suspicion of slowing growth in China. The long oil trade is overcrowded, much like 2007. Speculators are running rampant and will get flushed out. Once they do, there will be a steep decline in oil prices.

Over in the Euro-zone, PIIGS interest rates continue to climb. Spain's debt rating was downgraded and Portugal had a very weak bond auction this week. The EU is discussing new bailout plans and France and Germany will cover most of the cost as the two strongest members. This will not be a short process. Cultural differences will hinder negotiations and will extend the deal making into the summer.

I expect strength in the coming week as many of the world's issues are resolved. The news will be fairly light this week and will allow markets to heal after this weeks pullback. SPY 130 held nicely keeping intact the 130-135 trading range. If SPY 130 does falter, then a pullback to 128, and possibly 126, is in the cards. However, the closer to SPY 126 the market gets the longer I will get.

Areas of support remain at S&P 1300, 1275 and 1260. Resistance remains at S&P 1350.

What are your thoughts on the market? Place your comments below!

BOOKINGALPHA UPDATE:
This was a somewhat bittersweet week for BookingAlpha subscribers. Great ultra short term returns continued to be realized this week including profitable credit spreads on AAPL, GOOG, and SPY.

However, we suffered a loss on the put side of a GOOG Iron Condor on Thursday. The loss was due to the stock's continued nosedive from 630 to 575 - about 9% in 3 weeks. Major support was sliced through on Thursday when the stock opened below both the long and short strike of the spread. The decision was made to close the position and retain what value was still left in the position. Support had been holding at 690 but during Thursday's market-wide pullback the stock careened through the support level.

The call side of the Iron Condor expired worthless for full profit but was not enough to offset the loss on the puts.

Market dynamics have shifted this week and as a result, our strategy must shift as well. BookingAlpha has been successfully trading numerous very profitable, extremely short term, weekly option position and booking substantial profits for the last few months. But, the opportunities are becoming fewer and further between. In response to the return of volatility and the shifting market and derivative pricing, it is most prudent to reign in the risk and return to our core strategy of longer term less volatile spreads; longer term being 15-30 days instead of 5-10 . We will still seize short term opportunities as they arise and sprinkle them among the longer dated positions.

To clarify and educate, a spike in volatility, like what occurred this week, increases all option premiums including those further out of the money. This means that option positions can be placed further out of the money while still receiving substantial credit. This greatly improves risk / reward profiles and probabilities. This is actually a good thing as less risky trading can be undertaken while still achieving substantial Alpha. As a result, trading will be less active and position volatility and commission expenses will decrease.

Stay tuned......happy trading......and thank you to everyone for BookingAlpha!

What are your thoughts on the market? Place your comments below!

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