2/15/2009 7:08:14 PM
The markets continue to go sideways and the system is oscillating, we are now in a Preliminary Sell signal. (Please note, a preliminary signal is essentially a neutral point, where further market action is needed to confirm the direction.)
With the market continuing its range bound trading, there's a great deal of energy building for a big move when a direction is eventually chosen. At this point, the sense is that we'll be heading higher in the near term, but we can't be certain just yet.
The week ahead is a holiday-shortened week as well as options expiration, it's possible we'll see some fireworks this week but in any event the key levels to watch are 800 for the downside and 870 for the upside.
On to the markets..
This past week wiped out the gains from the prior week however there's no change to the picture. We remain in this trading range that's been going for 3 months now!
The shorter picture shows that while the angles of the symmetrical triangle changed slightly last week, we still remain in an indecisive period. The "buy the rumor, sell the fact" scenario discussed last week turned out to be the case after the market sold off heavily on Tuesday's announcement. Now we seem to be in a position where a close above 870 will put the bulls in charge and a close below 800 will put the bears in charge, until then, indecision remains the name of the game.
The 850 level is still an important area and if surpassed, will begin to give the bulls an opportunity but until then the bears have the edge. With Monday being a holiday, it seems traders started the holiday early on Friday as volume was on the light side. And so while the bears have the edge for now, that could change easily when Tuesday rolls around.
For this week, support on the SPX is 800 - 820 and resistance is 850 - 870.
The VIX Picture
The VIX picture is giving us a bit more of an insight into what's happening behind the scenes. We would have expected more of a spike in the VIX on Tuesday when the market dropped almost 5%, instead it didn't and it found the 50 DMA resistance line impenetrable. We could be seeing a descending triangle here, which may bode well for the general market.
Keep an eye on the 41 level this week, if we close below that, it'll be a sign of strength returning to the general market. Having said that, the real key to a sustained rally for the markets is a close below the 200 DMA at 37.
If I were only looking at this chart, I'd say that the bulls have a reasonable chance to take charge and rally the general market in the near 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 the current open positions, we have less than 4 trading days to expiry and over 100 points from the nearest sold strike. We remain comfortable with this.
Quote of the Week:
The quote this week is from Aristotle, "It is best to rise from life as from a banquet, neither thirsty nor drunken."
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