2 Weeks to Go
10/3/2008 8:40:19 PM
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On to the markets, the system remains in Sell mode.
On September 22 we sold an SPX Oct 1070(SPQVN)/1060(SPQVL) Put Option Spread for a net credit of $0.80
The premium received is $80 per $1,000 of margin required per spread (before commissions).
SPX Chart - Bigger Picture
In the bigger picture we're around a key support point of 1090, the ferocity of the move lower has been extraordinary and it's my opinion that we're at one of the best buying points of the year. Yes, we are in a bear market but that doesn't mean there aren't great opportunities on the long side. We still have divergence on the MACD and there is a large bullish wedge developing.
We seem to be in a similar position to around the 9/11 time and at that point the market rallied for 6 months and added around 20%, of course the market tumbled again by mid 2002.
If we were to use that as a road map for the period ahead of us, we would get to around 1320 by March 2009 before rolling over again and make new lows by this time next year. Lets see what the shorter term shows.
SPX Chart - Smaller Picture
In the shorter term, the market copped a 9.4% thumping this week, posting a greater than 100 point loss! These are indeed extraordinary times. With that said, we seem to be at an extreme where the likelihood of an advance is probable. We could get a little more weakness on Monday but a turnaround is anticipated to begin shortly after that.
There are positive divergences on the technicals as well as a bullish wedge developing, a close above 1160 will be the first sign that we're on the turn. At this point it may not be comfortable that we finished the week at a low point but a retest of a low is often necessary before a more stable advance is made. After the big fall on Monday, the retest today may prove to be just what the doctor ordered.
Support is now at 1090 - 1070 and resistance is 1160 - 1180.
In relation to our open Put Spread, with 2 weeks to expiry, we only have a 29-point buffer now, which is not entirely comfortable. We remain confident that we are close to a turn higher at this point but next week is the key, if there is further deterioration by the end of the week, then we'll need to take defensive action.
The quote this week is from Carl Sandburg, "When a nation goes down, or a society perishes, one condition may always be found; they forgot where they came from. They lost sight of what had brought them along."
Have a great weekend and feel free to email me at email@example.com with any questions or comments.