Broader Market Weekly Performance:
Dow +1.60%
S&P +2.18%
Nasdaq +4.13%
Russell +4.16%
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MARKET UPDATE:
There is a lot going on in the market and with our Trading Service positions this week. As a result, I will use bullet format to get all these thoughts out in a somewhat digestible format. Please excuse me if I jump around a bit :)
--The market has moved from overbought to insanely overbought with Friday's gap higher outside the upper Bollinger Bands.
--All major indexes are >3 standard deviations above their 20 Day Moving Averages. This is an extreme reading.
--All of the major index charts are full of gaps in the recent rally that WILL be filled. All gaps get filled, it's just a question of when.
--The market is full of euphoria and has become extremely complacent. Markets don't rally 6 to 9% PER MONTH even when the market/economy/globe is hitting on all cylinders. For perspective, a good YEAR of performance for markets is 8-10%.
--Euro-land, and specifically Greece, is not fixed and will default in the not too distant future.
--Markets take stairs up and elevator down. AKA - markets rise much slower than they fall.
--Earnings estimates were lowered going into the current reporting season. The earnings beats are on drastically lower expectations and outlooks are below already reduced levels for the rest of the year.
--This current rally is on the lowest volume in over 10 years.
I could go on with lots more snippets but the bottom line is that the markets are rallying hard, period. Even if you feel like the market is going to continue higher unabated, you would be foolish to think there will be no pullbacks along the way. Look at every uptrend and you will see healthy pullbacks throughout out their ascent. Then look at the current rally beginning in late Dec 2011. There is a glaring lack of pullbacks.
The same goes for large scale pullbacks, just like rallies don't go straight up, pullbacks don't go straight down either.
That is why I am comfortable watching this thing go parabolic. Each additional rally day without a healthy pullback and digestion of the move undermines the health of the gains. The action feel like a blow-off top where the market makes one final unsustainable extreme push at the end of a large rally. It typically begins with a gap up, lasts a few days, and then comes back down to earth.
i think this blow off top could take us to S&P 1350-1360. However, with all the indices trading more than 3 standard deviations above their 20 Day Moving Averages and trading above their upper Bollinger Bands on daily & weekly time-frames, this momentum cannot last for long. A pullback to at least the 1315 level is imminent in the coming week or 2 .
Navigate wisely and stay profitable, my friends. Happy trading!
BOOKINGALPHA UPDATE:
Monthly Trading Service Commentary:
As communicated Friday and again below, this is a good area to add to some of the current positions by purchasing additional spreads at even better prices (larger credits received) than our original entries.
Another alternative would be purchasing additional long puts in the SPY Bear Put Debit Spread to create a ratio spread. This will result in having more long puts than short calls which will provide enhanced profits on any pullback
To remind you all that I have my own money on the line as well as that of my fund, and to provide my commitment to my strategy and comments, I executed both of the suggestions listed above on Friday. Furthermore, with the portfolio 60% invested after adding the SPX spread this week, I am looking to deploy the last trade for Feb early in the coming week on RUT or IWM.
RUT is the most overbought of the indexes and closed above its daily & weekly Bollinger Band on Friday. This sets up a couple great trading opportunities so be on the lookout for a trade this week.
This is not the time for knee jerk reactions. Don't get spooked and bail on losing positions as that simply locks in losses and eliminates the ability of those positions to recover. Option volatility's are getting whipped around and the value of our holdings are whipsawing on a hourly/daily basis. Don't let this effect your emotions and make rash decisions.
Timing- wise, our positions will benefit very quickly on any pullback. With 2 weeks left in our current options trades premiums are low. The Greeks Delta and Gamma are high due the proximity of the underlyings to our spreads. This will cause our spreads values to mirror the markets volatility more closely and recoup losses quickly on any pullback.
As stinky as it looks right now, this is actually a good place to be, under the circumstances, as we will benefit from pullbacks immediately and at a fast pace which will help reduce the current losses reflected.
Adjustments to all the positions are still available with no cost to profitability and that is a very important thing.
The SPY Bear Put Debit Spread is in good shape as in spite of Friday's rally, the SPY remains below the break-even level of the spread. Any consolidation or pullback will be reflected immediately in the position. Ample adjustment opportunities exist as well.
The SPX Bear Call Credit Spread is in good shape as well so there is nothing to do or worry about with the position right now.
The QQQ Bear Call Spread is the ugliest of the positions right now. Roll adjustments are still available at no cost and with the Q's closing above their daily and weekly Bollinger Band, not to mention the RSI, Williams %R and air pockets down to the short term moving averages, the crazy Q's need to take some off the top which will benefit this position greatly.
+4.60% YTD BookingAlpha Monthly Advisory
vs.
+6.83% YTD S&P 500
Weekly Trading Service Commentary:
This week I used the continued rally to execute a Bear Call Spread on SPX which expired Friday for full profit of +4.17% in 3 days.
Friday's gap up and continued run into the close sets the coming week up nicely for another trade so be on the look out for that on most likely Tuesday or Wednesday.
The existing IWM Bear Put Debit Spread is feeling some heat as the IWM has been on fire lately. The IWM is up +9.6% YTD and +4.9% last week alone. It closed above its daily and weekly Bollinger Band and is reflecting the RSI in almost 2 years. IWM is the second most overbought of the indexes. This is an unsustainable pace that cannot keep up.
The existing IWM position can be easily roll adjusted if needed but it is too early to do so just yet. Let this blow-off top run its course and don't let your emotions cause you to make rash decisions. This is not the time for knee jerk reactions. Don't get spooked and bail on losing positions as that simply locks in losses and eliminates the ability of those positions to recover. Option volatility's are getting whipped around and the value of our holdings are whipsawing on a hourly/daily basis. Don't let this effect your emotions and make rash decisions.
Timing- wise, our position will benefit very quickly on any pullback. With 2 weeks left in our current option trade premiums are low. The Greeks Delta and Gamma are high due the proximity of the underlying to our spread. This will cause our spread value to mirror the markets volatility more closely and recoup losses quickly on any pullback.
As stinky as it looks right now, this is actually a good place to be, under the circumstances, as we will benefit from pullbacks immediately and at a fast pace which will help reduce the current losses reflected.
In the meantime, we will continue to manage the IWM position prudently and take opportunistic advantage of trading opportunities when they become available.
The Weekly Advisory continues to outperform and deliver Alpha:
+6.55% YTD BookingAlpha Weekly Advisory
vs.
+6.83% YTD S&P 500
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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