Market Whiplash: From Oversold Back To Overbought

Broader Market Weekly Performance: Dow +7.01% S&P +7.39% Nasdaq +7.03% Russell +10.34% www.BookingAlpha.com Check out my latest interview on Benzinga and TraderInterviews.com MARKET UPDATE: Markets had quite a turnaround this week after logging the worst Thanksgiving week performance since the 30's. Last week's 4% drop was answered with a 7% gain this week. Whiplash anyone? Markets ran right up to big chart resistance on the news of the Euro-zone bailout at the 200 Day Moving Average on Friday. In fact, Friday morning the SPY opened with a gap comfortably above the 200 DMA. However, the market weakened all day, ultimately, closing in the red below the 200 DMA. Due to recent trading activity I have included detailed comments and insights in the Monthly & Weekly Advisory Commentary below. Check them out! BOOKINGALPHA UPDATE: Monthly Advisory Commentary: It was a fun week creating Iron Condors out of our existing Put Spreads by selling corresponding Call Spread in response to the monster market move this week. We created 2 Iron Condors this week: One on RUT (Russell 2000 Index), and one on SPY (the ETF that tracks the S&P 500 Index). The Puts for these two trade were executed last week when the market become very oversold by logging the worst Thanksgiving week performance since the 1930's. The Put premiums collected were nice and juicy, thanks to the volatility, and as a result of this week's huge market move, are reflecting handsome profits. I elected to keep the Puts open, despite the profits currently available if they were to be closed, to leverage their margin requirements. By keeping the Puts open, the Calls can be sold to create Iron Condors with no additional margin required. It is like getting 2 trades for the price of one and who doesn't like that! (Here is a link to understand what I am talking about if you are completely lost: Vertical Credit Spreads & Iron Condor Spreads: Calculate Performance) As a result of leveraging the Put Spreads into Iron Condors, I have risked only 40% of our entire trading capital (20% capital allocation per trade) for the 8 total spreads. The ROI on these trades is quite nice and should provide a heck of a profit for December; to cap off an already insanely profitable year. With the market overbought and nearing the upper end of its trading range, I am looking at some new spreads to deploy this week using either Dec Monthly options (expiring 12/16) and Dec Quarterly options (expiring 12/31). The Monthly Advisory continues to outperform and deliver consistent drama-free Alpha: +49.10% BookingAlpha Monthly Advisory vs. -1.03% YTD S&P 500 See Trading Record Weekly Advisory Commentary: It was an active week in the Weekly Trading Service with a surprise Fed / Euro-zone bailout announcement on Wednesday requiring an adjustment of the SPY spread opened on Tuesday. Of well, this is trading and you never know what tomorrow will bring. In this crazy market you can't take your eye off the ball for one day! You can read my thoughts about Wednesday's European bailout in my blog post: Markets Gain 4% On News of Helping Europe Borrow Its Way Out Of Debt. VIX to S&P Correlation Very Weak. Friday morning's market strength (the pre-market futures were up 1.3%) required me to release a morning update where I stated I was looking at yet another adjustment for the SPY spread and a potential closing of the QQQ spread, to book profits, if the market stayed strong all day. The market opened strong but immediately started weakening. As the day wore on the market continued to backpedal, ultimately, closing in the red. As a result of this trading action I did not adjust the SPY or close the QQQ position. The SPY has become overbought, posting a 7% gain for the week, and has encountered resistance at the 200 Day Moving Average (DMA). I expect the SPY to digest these recent gains and back and fill to work off the current conditions. Going forward, if weakness occurs, I will take advantage and close the spread for a marginal loss or potentially adjust the spread to mitigate the risk to a more comfortable situation. If the market becomes very weak very quickly I will leave the position as is and monitor it closely as profits may indeed be available. If market strength continues, I will adjust the spread again to mitigate losses or just close it adhering to my stop loss of approximately 40%. The QQQ ITM debit spread is performing wonderfully and reflecting a nice profit. I am looking for a closing credit of $1.90 (currently the spread is valued $1.87) or higher to glean the most profit possible from the position. The trade was opened for $1.62 and I anticipate profits of +17% or greater. The QQQ ITM debit spread has been a great trade and while there were many questions, and some apprehension from subscribers, when it was released, I am confident tidy profits have provided a good learning experience for many of you. The Weekly Advisory continues to outperform and deliver Alpha: +22.37% YTD BookingAlpha Weekly Advisory vs. -1.03% YTD S&P 500 See Trading Record