Options Outlook: Green With A Red Tinge Amid Fed Talks, China Threat And Eurozone Issues

Scoreboard

Most indices finished the week with green weekly candles; however, they barely did so, and it could have gone either way. In fact, the PowerShares QQQ Trust, Series 1 (ETF) QQQ was red. On the face of it, doji candles (indecision) are present, but the price action details were far from boring. Just consider the action in Apple Inc. AAPL down under 110 at one point during the week.

The bulls remain uncommitted, having no real conviction in the bull thesis other than to say, "It's been working for years and why should it stop now?" That being said, things have changed: 1) No U.S. QE; 2) The Federal Reserve is shrinking its balance sheet (anti QE); 3) Rates will be rising; 4) Other global concerns, like falling oil, China threat, Eurozone growth, etc.

Note: Intraday last Friday, markets and TLT (bonds) moved in the same direction. This is new (for the week) and could be that markets are pricing in some hopium that rates not rising in September.

Friday closed strong on the news that the Eurogroup agreed to implement the Greek bailout; however, the storybook has not closed, as Germany is expected to publicize a response Tuesday.

Focus Points

Apple: Outperformed on Friday and now has a chance at 118/119. If so, then the indices will get a nice boost into next week, especially the Nasdaq.

Small Caps: They led up on Friday. This should be encouraging for the bulls. But, the week did cause technical damage and now they need to hold the recent lows or risk much lower prices.

Caution for both bulls and bears: Extended periods of range-bound could end with a big move.

Don't chase; don't panic. Be cautious.

Ranges: Another perfect range set up for iron condors. Again, the bulls have disputable conviction, and are quick to sell their gains. The bears haven't yet started to play, so the potential capitulation drop could be violent when they do.

SPY: SPDR S&P 500 ETF Trust SPY is still in the middle of the recent range. The next move direction is based on sentiment, as fundamentals have been stagnant for months. At some point either limit (upper and lower) will break and whoosh it shall go. It has the opportunity to break the lower-high trend (white dashed line) and run up, or else revert lower.

QQQ: Seems tight and suggests an imminent move is coming, although the direction remains unknown. Also, the Qs are almost exactly in the middle of the recent ascending trading channel (dashed white range). Direction of next move is almost arbitrary and dependent on the headline stream. Iron condors still offer the best trade ideas during this stalemate.

IWM:

Now that the iShares Russell 2000 Index (ETF) IWM has reached my lower target from a few weeks ago, it is now closer to the lower end of the recent trade (unlike the QQQ). This puts it in a "must bounce" situation, where it cannot afford another whoosh down. The next fast drop could gather momentum and break the stalemate downward. From here it would need further deterioration of sentiment. The fundamentals have not changed.

VIX: Watch for when the VOLATILITY S&P 500 VIX goes under 12.5 again.

Other Variables

Facts did not change this week, only sentiment, so no change in thesis.

• Oil: new low. This cannot be conducive of a growing globe.
• Currencies: In flux and they can affect markets.

Tickers

LOCO Earnings on August 13 for El Pollo LoCo Holdings Inc LOCO were badly received and broke its IPO price. This is a throwing knife that shouldn't be caught, since there is no bottom to trade; that being said, a new wedge broke and has more technical possible downside.

WFM August 14: Whole Foods Market, Inc. WFM's ideal target is now around 28.

DIS CNBC buzz around a nice movie pipeline, yet the Walt Disney Co DIS was still red August 14.

WYNN Wynn Resorts, Limited WYNN is a falling knife that cost a lot of people a lot of fingers last week.

Image Credit: Public Domain