Happy Easter!
Suddenly it seems bullish again. The S&P 500 gained 13.5 points on Wednesday on higher volume, an indication of institution buying. Beside the solid gain on Wednesday across the board, the rest of the week was just treading water. We expected a low volume week ahead of the Good Friday long-weekend holiday. It is typical of the market to show low volume ahead of a long-weekend holiday. I should also point out that despite showing and accumulation day on Wednesday, the volume was lower than average.
Attached is the chart of SPX. It closed yesterday at the high of 1439, just 2 points shy of its recent March 26 high of 1437. As you can see on the chart, it is facing its 78.6% Fibonacci retracement resistance. Next week will be key. Whether SPX will break the 78.6% resistance or not, we’ll have to wait till next week to find out. Other charts are showing the same pattern. The only exception was the Russell 2000, which was beginning to show relative weakness. It closed almost 1 point lower yesterday while the Dow and the S&P 500 moved up. In short, the market seems to have recovered somewhat since the nightmarish clash on 27 Feb. However, it is still too early to say that the bulls are back in charge.
What does all this mean to us option traders? When the market trades in low volume it can get erratic very easily because there is no dominant force to gravitate to. That was one of the two reasons we didn’t enter any new trades nor adjust any current positions. The other reason was that we can’t find any good trades. When the market opens next week and when the traders come back in masses, we’ll see if the recent upmove is a true comeback of the bulls or is it just a fake. We expect to close some of our positions next week to lock in some profits and to free up some capital for our new trades. We expect to enter some new positions for May next week. We are currently stalking them now. But we’ll wait out for a while before we enter.
On behalf of all at MarketNeutralOptions, I would like to wish you a happy and peaceful Easter. Enjoy your long-weekend!
Gary
