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The SPX fell 11.74 points, DOW fell 73.4 points and Nasdaq fell 28.48 points on Friday. Market internals were bearish. The SPX finally forms a top. One of the well known facts of technical analysis is that prior resistance becomes support after being broken and prior support becomes resistance after being violated. Along the way up to a new 5 1/2 year high, the SPX has now multiple support levels.

The prior high of 1389 now becomes the short-term resistance. As you can see, today’s fall violated the secondary trendline (in orange). If there is a follow through in the down move on Monday, the 1369 level will provide the immediate support. Any move below 1369 on high volume, the 1389 resistance will become stronger.

What is to come will now depend on what happens on Monday. The SPX has been over extended and there will come a point where there is no more buyers. Those who chased after the price will realise that they bought for too high a price and start to get out. When a top forms, sellers start going short as they believe that the time has come for a reversal. Buyers who bought earlier will offload their long positions to reduce their losses or to lock in their profits. Over the past weeks, the market has plenty of buyers with long positions. When the price drops to a level where they can no longer bear with the pain, they will start selling. Is today the beginning of that happening? We will find out soon over the next few trading sessions.

It is not wise to start shorting the market at the moment. Remember, the overall bullish trend is still intact. One bad afternoon does not mean the beginning of a bear market. What today tells us is that the bulls are getting tired. The bears may take over, or it can go sideways for the moment. VIX is still very low. When VIX hits 13 or 14, the bears will have a better chance.

Have a great weekend!

Gary

Dear valued subscribers,

The SPX simply refuses to back down. It has been going up for weeks now. See the daily chart below.

However, it must be noted that the gains in the last few days were done with lower volume; a sign that it is running out of buyers. But at the same time, there’s still no sellers.

The Feds did cause some volatility as usual but the SPX gains 4.83 eventually. The SPX has been hugging the upper trend line for quite long now and chances are higher than ever that a pullback down to immediate support of 1368. Any close below 1368 and the bears have a chance. As long as SPX trades above 1368, the bulls are still very much in control.

There is really not much we can do at this juncture. If you are long, you should consider taking your profit or at least tighten up your stop. It is very risky to chase after the price and try to go long now. It will be the best to wait out for the market to stablize before putting on new positions. As such, there hasn’t been any suitable trades for our advisory lately. We are eyeing a few trades even as we speak. But we’ll have to wait for a more favourable situation before risking our capital. Nothing new to add really, except to say the same as last week: that a pullback is imminent but it hasn’t happened. Please visit our blog for more current updates and news.

Our weekly positions update

The recent bull rally in the broad market hurts many of our neutral positions. However, bear in mind that such a strong showing in the market doesn’t happen very often. We are being very careful about entering new positions for these few weeks because market conditions are simply not offering us any nice trade. There was no new position for the last week.

The SPY 131/132/138/139 Nov iron condor we put up on 12 Oct just got ITM today. We are looking for a suitable time to close this position for a small profit.

Our short DIA 111/113/118/120 Nov iron condor, which was rolled from a Double Diagonal initiated on 25 Sep is currently pretty deep ITM. We have 22 days for DIA to fall in order to profit from this trade. The Dow has been super impressive lately and the move we see in the Dow recently is something that doesn’t happen often.

We are constantly searching for viable trades for this advisory.

To your trading success,

Gary
Founder, Head Trader of MarketNeutralOptions

Seems like the market is still undecided. This fight between the bulls and the bears has been going on for the last few trading sessions and there’s still no clear winner in sight.

In market situations like this we’ll avoid or be extremely careful about initiating new positions. In fact, we can’t find a nice trade to initiate! As of now, the DOW is up another 100 points. At the same time VIX (volatility index) is rising, but not by much.

We would like to see a top forming before initiating new positions in SPY and DIA. It’s too late now to chase after the price as a sharp and hard pullback may develop soon. On the other hand, it may not to wise to short an obviously bullish market. Remember, we are market-neutral. We don’t care if it’s a bull or bear market. We simply need good risk/reward trades. At this time, we don’t find any sensible trades. Not yet. Let’s wait and see how this fight turns out. Plus, there’s a FOMC meeting coming up on Wed. We may see a clear winner after that.

To your trading success,

Gary

Founder, Head Trader of MarketNeutralOptions

For the entire day, the SPX treaded water in a tight range of between 1362.06 and 1366.97. It closed yesterday at 1365.96. More remarkable is the breadth in NYSE. There was such a fight between the bulls who refuse to give up an inch and the bears who refuse to submit to the bulls. See the advance-decline volume chart below and you’ll probably understand.

The green/red candle sticks are advancing volume while the purple candle sticks are declining volume. Look at how close they are! They are almost the same line! Alright, so what does that mean? This basicaly gives us a good “under the hood” picture of what’s going on in the market. What today’s chart tells us is that the bulls and bears are equally strong: for every buyer out there, there is a seller. They are in equilibrium so to speak. But this information has to be analyzed with respect to the bigger picture.

The bulls have been steadily rising since 12 Sep. SPX has been trending up steadily in an uptrend channel. The best the bears can do happened 2 days ago, and it was a measly effort. The SPX dropped by a mere 5 points! That seems to be the best the bears can do!

In this context, the bulls are relatively stronger. Even though SPX is over-extended, it doesn’t have to come down simply because it hasn’t. SPX can choose to correct by time and be trading in a tight range. Honestly, I have no idea where it’ll go. The risk is high on both sides of the market. We’ll wait for a clear trend to develop before initiating any new positions.

Tomorrow is options expiry day. Do remember to check your ITM options to avoid any assignment issues.

good trading!

gary

The bulls finally gave way, but by not much. SPX was down 5 points, DOW down 30.58 and Nasdaq Composite was down 18.89. Overall volume in NYSE and Nasdaq was higher than previous days. This makes today a bearish distribution day. A sign that institutions are selling into strength. Or are they?

Since our last market update, the SPX had rallied from about 1350 to 1370. As shown in the chart below, the SPX has an immediate support at 1350. If this support level is breached in the next few trading sessions, the next support can be found at about the 1340 level since that was the previous resistance. In technical analysis, it is common knowledge that prior resistance becomes support while prior support becomes resistance. As such, the immediate resistance for SPX will be at the recent high of 1370.

Many bears are relief that the pullback finally happens today. Volume does increase across the board but it is not time to go short in this market yet. The market is still showing strength despite a pullback today. Look at the charts below and you’ll see why.

On the left is the advance-decline volume in the NYSE for 17 Oct in 5 min interval and on the right is the 15 min chart for SPX. The purple colored candle stick is the total advancing volume while the green/red candle stick is the total declining volume in the NYSE. SPX gapped down fiercely in the beginning of the day. It was trading at a low of 1356 at 11:45 am EST. But look what happened at noon. SPX retraced back more than half of what it lost steadily. In the final moments, there was a sudden increase in advancing volume in step with a strong push up in the SPX as highlighted in the charts.

This shows that the bulls are not giving up without a fight. And signs are pointing toward a tough fight. What will happen tomorrow, I don’t know. But I can promise you it will be interesting.

There will be overhead supply from bulls who are late into the rally and are now stuck, waiting for a chance to breakeven. As soon as prices near the high price they paid, they’ll sell. After such a big gap down today, panicky bulls may choose to close out tomorrow, pushing the price even lower. On the other hand, from what the charts show, the bulls are resilient. The big fight will happen tomorrow.

Our weekly positions update

We shorted a SPY 131/132/138/139 Nov iron condor on 12 Oct. This position is looking pretty good currently. With 31 days to go and the pullback going on, this trade has a high chance of being profitable.

We rolled our 25 Sep DIA double diagonal on 17 Oct for $1.30 credit. We are now short a 111/113/118/120 Nov iron condor. Although this iron condor is currently ITM, we have 31 days for DIA to trade back to our profitable range. We rolled this trade with a fantastic risk/reward ratio and a positive expected return. Otherwise, we’d have closed it, take a small loss and move on

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To your trading success,

Gary

Founder, Head Trader of MarketNeutralOptions

P/S: Do send me an email to let me know how we can improve this weekly update. We’ll be very happy to hear from you.

Market was extremely strong today. Dow registered a 3-digit gain and now the media is talking about Dow hitting the 13,000. SPX gained close to 13 points. I’m starting to wonder… when will the bulls stop?

After 5 days of consolidation, the bulls are still as strong as they were 3-4 weeks ago. Seems like nothing can stop them now. Nuclear scare and possible OPEC cuts are not enough to stop the bulls. Just what will it take?

Tomorrow will be interesting. If the market were to selldown heavily tomorrow (quite unlikely considering the market internals today), it may start a reversal. Or it could simply go higher. Well, nobody really knows… we shall see…

We decided that having a blog on MarketNeutralOptions.com serves a few purposes:

1. This would be the easiest way to update our visitors of market updates and the performance of our advisory service.
2. We can conduct experimental trades via this channel so that our visitors and subscribers can learn our trading strategies.
3. To prove that MarketNeutralOptions is run by real human beings and not robots!

Of course, as time goes by, there will be more postings and content. It’ll take some time to grow. Do check back regularly, you might be pleasantly surprised.