7/29/2007 7:16:52 AM
Our system remains in Sell mode and while the market fell around 80 points this past week to close at just under 1460 (a drop of over 5%), our Call Option Spread at 1615/1625 has essentially become worthless (which is profitable for us). In theory, we could close this position now and have made a profit of around 5% in a week. But this service isn't here for the quick ins and outs, we're here for monthly cashflow and consistent profits over the long haul. It's a marathon not a sprint, so we'll enjoy the safety of our position and let the next opportunity presents itself before taking further action.
On July 23 we sold an SPX Aug 1615(SPBHC)/1625(SPBHE) Call Option Spread for a net credit of $0.55. (i.e. $55 per $1,000 of margin)
SPX Chart - the waterfall effect!
What a week, just as it seemed that the market was breaking out into new highs, it turns dramatically and reveals a bull trap. I'd imagine that a lot of the old bears would have also closed their short positions out of frustration prior to the drop. Nevertheless, for anyone trading actively, this past week would have been very profitable, given the succession of down days.
From our perspective, the timing of sell mode last week could not have been better, we effectively now have a buffer of 10% (i.e. the market can rise 10% in 3 weeks and we'll still be safe).
The chart above shows that we're approaching some major support and if that was to break, then we'd be looking at a crash scenario. This is unlikely for several reasons:
- As of last Tuesday, the commercial traders (often called the "smart money") held the largest net long position since the stock market bottomed in March 2003;
- The 200 day moving average is at 1448 and is generally a good long term support point;
- The uptrend channel that developed from a year ago, is around 1450 and this is support;
- 1450 - 1460 coincides with the highs from February 07 and previous highs often act as support on the way down;
- The RSI indicator is approaching an extreme oversold level that has often been a turn around point in the past
In summary, we could get a little more selling this week, but in the short term 1450 is a major support point and a bounce is highly likely. If that bounce happens this week and our system gives a buy signal, then we'll be entering a Put Spread for August also.
Feel free to email me directly at firstname.lastname@example.org if you have feedback or questions.