3 Weeks To Go
2/1/2009 8:06:35 PM
The system had moved into a Preliminary Buy signal intra week however it again returned into a Preliminary SELL signal by the end of the week. (Please note, a preliminary signal is essentially a neutral point, where further market action is needed to confirm the direction.)
While we had some big swings last week, in the end we are virtually unchanged. The first three days were positive and the next two wiped it all out. The indecisive period we've been in for two months now continues to frustrate most of the participants. As the daily chart below show, we may be getting to a point very soon where a decision on direction is made.
On to the markets..
Not a lot has changed for the bigger picture, we continue to trade in the band between 800 and 950. The technicals are essentially flat and just holding a positive skew. We're still looking for 800 to hold on a closing basis in order to maintain a positive stance.
About a month ago we showed that a symmetrical triangle had developed, you can see how we broke to the upside, not only breaking out of the triangle but also convincingly going above the 50 DMA. This however turned out to be a false break and now we find ourselves in a larger symmetrical triangle.
The question is, will the next break out turn out to be false also?
That's something that can only be known in hindsight, at this point we are firmly in a sideways pattern. The reality of the matter is that in order to change the pattern we're in, we either need to make a new high (above 950) or a new low (below 740) and that could still take some time to happen.
For next week, support on the SPX remains at 800 and resistance is 850 - 900.
The VIX Picture
In last weeks report, I mentioned how the 45 level needed to break in order for the market to progress higher, well we got that break and for now it's holding under 45. If we can stay under 46, we have potential for a more positive market.
The interesting thing is that while the markets dropped quite hard on Thursday and Friday, the VIX did not respond as wildly as it has in the past and this too is positive in the short term.
The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place.
The current position from January 20, is a half position in an SPX Feb 680/670 Put Option Spread at a net credit of $0.90 and from January 29 the other half position in a 720/710 Put Option Spread for a net credit of $0.70.
The premium received now if you entered these trades is $80 per $1,000 of margin required per spread (before commissions).
In relation to these open positions, we have 3 weeks to expiry and over 100 points from the nearest sold strike. At this point we remain comfortable with this.
Quote of the Week:
The quote this week is from Jonathan Swift, "A man should never be ashamed to own that he has been in the wrong, which is but saying... that he is wiser today than yesterday."
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