Advantage Credit Spreads: Weekly Update

By: Angelo Campione | Sun, Jun 21, 2009
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6/21/2009 7:41:38 PM

In a market that went up 3.9% for the month, ACS just generated its best return this year at 10%. When you consider that at the start of the year the S&P opened at 902, if you'd simply bought and held, you'd be up less than 2.5% in 6 months and gone through a lot of anguish along the way. On the other hand, the ACS strategy has added 36.5% on an uncompounded basis and has done it relatively comfortably. At this point, the average return is 6.08% Per Month and right on track with the average we aim for of 6% per month.

We made some changes to the system late last year that has added a new dimension to this strategy and the results are speaking for themselves. In a market that's gone through major turmoil, it certainly hasn't been breeze for newsletter writers to produce consistent gains this year and so we remain humble that we have been able to do well under the circumstances.

It's certainly no time to get cocky, losses are always possible for any system and while we can't make any guarantees for future performance, we can state that we remain committed to being vigilant in producing the best returns for the lowest possible risk.

Here's the performance for ACS so far this year:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
6.0% 8.0% 4.0% 2.5% 6.0% 10.0
(Please note, this performance is raw, i.e. without brokerage/commissions taken into account)

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On to the weekly report.

Current Positioning:

SPY: Short 50%
QQQQ: Short 50%

General Commentary:

The system for the SPY is 50% into a Sell signal __ __ __ __

The system for the QQQQ is 50% into a Sell signal __ __ __ __

The current market conditions underwent a break down of sorts during the week although support held and the up trends for all markets remain in place.

With trends holding, the potential for a rise to new highs from here is still quite possible, although in a wider scale, the down side potential remains greater than up side potential, so we continue to be wary of any rises.

On to the analysis..

SPX Chart - Bigger Picture

The bigger picture is showing how the downtrend line is passing through around the 960 region, this could be insurmountable resistance in the near term and if the downtrend channel drawn is correct, then chances are the target is around 800 for the medium term.

Note also that the linear MACD is approaching zero, if we are in fact in the middle of a bear market rally (as so many suspect), the MACD will begin to turn lower over the next month or so.

SPX Chart - Shorter Picture

The shorter term picture is at an interesting juncture, on the one hand support at 925 - 930 broke during the week, and on the other hand, support around 900 at the 50 and 200 DMA held.

If we can get a close above 930 this week, then the high between 950 and 960 will most likely be tested. Having said that, the MACD is showing negative divergence, which leads me to think that we'll be heading lower at some point soon. In the mean time we can still get a bounce here just to give the crowd the impression that the bull is alive and well. It's a tough one to call but watch for 900 to break in order for the bears to take control.

For this week, support on the SPX is 900 - 910 and resistance 930 - 960.

NDX Chart - Shorter Picture

The Nasdaq fell quickly during the week but found support around 1440. The uptrend channel remains in place and there is potential for this one to climb again.

If Friday's strength continues into the week ahead, we'll most likely close our shorts, as there is potential for a decent run up from here. What we're looking for is a close below 1440 as a sign that the bears are preparing to take control. Until then the bulls have the upper hand.

Note also that the MACD is potentially turning bullish from here. The start of the week should hold the key for the near term.

For the week ahead, support on the NDX is 1400 - 1440 and resistance is 1500.

The VIX Picture

The VIX spiked up early in the week giving the impression that the wheels were about to fall off the market, although by the end of the week it was back to where it finished the prior week.

While the MACD is showing the potential for a resumption of the downtrend, the most likely scenario is that we go sideways a little more and form a good base before heading higher. This scenario favors the probabilities that we'll see a significant drop in the markets within the next few months.

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. It tends to move inversely with the markets.


I thought I'd begin a record of performance so that you can compare your own performance to ours. We'll begin with the current open positions:


Entered L/S Price Closed Price P/L (%)
26 May Short 33.21      
11 June Short 36.72      


Entered L/S Price Closed Price P/L (%)
21 May Short 88.96      
11 June Short 94.05      

Quote of the Week:

I thought I'd give a couple quotes this week for those celebrating Fathers day today:

Small boys become big men through the influence of big men who care about small boys. Fathers Day Quote by: Unknown

My father gave me the greatest gift anyone could give another person, he believed in me. Fathers Day Quote by: Jim Valvano

Feel free to email me at if you have any questions or comments.

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Angelo Campione

Author: Angelo Campione

Angelo Campione
"Improved Speculation Through Timing"

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