8/5/2007 9:17:56 AM
Are we there yet?
No. We got some support around 1460 but not enough to change our underlying mode and therefore our system remains in Sell mode. It does seem however that we're getting very close to a bottom (1430ish is another significant support level).
For Monday Aug 6th, I suggest that we close the Aug 1615 (SPBHC) sold call by Buying To Close (BTC) for no more than $0.05 (i.e. $5 per contract). DO NOT CLOSE THROUGH A SPREAD ORDER, OTHERWISE YOU WILL BE PAYING DOUBLE BROKERAGE FOR NO BENEFIT. Simply buy the sold call.
The reason for doing this is to free up our margin and thereby allow us to jump into a September position when the next signal presents itself.
On July 23rd 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)
While the SPX has already broken several key supports, quite frequently the market likes to make it seem that one thing is happening only to reverse and prove everyone wrong. I don't know if that's what's happening this time around, what I do know is that:
We've corrected almost 8% from the highs a few weeks back;
Fear in the market is at the highest level we've seen in over 4 years as measured by the Volatility Index (VIX);
We're at a 61.8% Fibonacci retracement level (the difference between the high in July of around 1555 and the low in March of around 1365 multiplied by 0.618 and then deducted form the high - 1555, brings us to 1437); and
The market is often like a rubber band, when stretched too far one way, at some point it snaps back.
All of this adds weight to the possibility of a turnaround at this level but I don't have a crystal ball and so we'll simply allow the market to do what it does and provide us with the next signal in due course.
Feel free to email me directly at email@example.com if you have any feedback or questions.