Weekly Market Update
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.
