04/03/11 Weekend Update & Outlook - New Highs For The Year

Dow           +1.44%

S&P            +1.51%

Nasdaq     +0.98%

Russell     +3.13%

First Quarter 2011 is now in the books and markets powered higher to finish out the quarter.  Japan still grapples with the aftermath of the tsunami and has yet to quell its nuclear crisis.  Libyan rebels slowly continue their advance toward overthrowing Gaddafi's tyrannical reign.  Nonetheless, markets powered higher into the close of the quarter.  Global chaos schmaos.

 

Finishing out a volatile Q1, it will be a challenge to figure out where we go from here.  The market is exhibiting behaviors that can be categorized as bullish and bearish.  In one perspective, the market appears to be making one last push to resistance and new highs with no real reason for doing so (volume is light, the move is straight up with no digestion, and there are many variables in play.....and the market hates variables, and QE2 is anticipated to end in April).  This would be the bearish camp's argument.

 

The bulls, however, argue that the variables in the world (Libya, Syria, Japan's nuclear problems and tsunami aftermath, expiring QE2, and exploding commodities) are all factored and priced into the markets.  They contend that the recent 7% pullback was the orderly breather the market needed to continue the bull run.   

 

I am in the camp that the market is looking somewhat toppy.  However, I think new highs are probable before any rollover comes to fruition.  The Russell has established new all-time highs which gives the bulls more ammo.  I anticipate this strength could last into, and possibly through, the April earnings season.  At that point, the "sell in May and go away" sentiment could takeover and allow the market to stay contained within the new highs to be set before then. 

  

Areas of support remain at S&P 1320, 1305, 1290, and 1250.  Resistance remains at S&P 1345, 1350, and 1400.

      

New call spreads were opened on SPY and IWM this week in response to the markets vertical push.  Recent market volatility has increased option premiums and has created some nice opportunities far out of the money.  The new positions were credit spreads utilizing April options.  The IWM spread established an Iron Condor by pairing the call spread with an existing put spread. 

 

A nice March Quarterly Iron Condor on SPY expired for full profit this week realizing a 13.6% return in 15 days. 

 

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