A Further Pre-Holiday Consolidation

It’s been a while since I’ve done a post. Most of you know I was traveling through SouthEast Asia (an amazing trip) and then right when I got back had to head to Los Angeles because of my grandfather’s passing (sad yes, but at least he lived to 90). Thanks for all the comments via Twitter while I was gone.

Let’s get right into it. Currently the bulls have the edge, and as of now, last week was simply a rangebound consolidation week that has good odds of continuing into next week. Below I will take a look at short and long term breadth and then both the Wednesday and Friday SPY expiration, which at the moment supports another week of consolidation.


SPX stocks at 20-day highs: As SPX was thrusting to new highs for a couple weeks, 20 day highs were getting a nice lift. They have yet to get above 50%, which would be a great sign of continuation into 2017. For now, as long as this measure keeps spiking at each new SPX ramp it is a good sign. As to the very short term, given that SPX is in bullish trend this measure is close to being oversold. Thus, any further lows will likely lead to a bounce very quickly.screen-shot-2016-12-17-at-1-38-32-pm

SPX stocks above their 20-day MA: Thus far this is holding up decently. Should SPX make a higher high again in the next few weeks, bulls want to see this measure get back above 80% to validate the health of that move.screen-shot-2016-12-17-at-3-12-51-pm

SPX stocks above their 200-day MA: Similar to the above, but on a longer time frame basis, this is holding up well so far and not showing any major divergences.screen-shot-2016-12-17-at-3-13-50-pm

SPX 52-week highs minus 52-week lows: Last week over twitter I posted this. screen-shot-2016-12-16-at-6-04-34-pm

The over 115 measure was on Thursday 12/8 so Monday would be trading day number 7. Now please keep in mind this is just a statistical study of the last five years and nothing more. Meaning there is good risk to reward that it works out again, but it’s no guarantee. With the caveat out of the way, it would suggest another few days to a weak of consolidation with potential for more minor weakness and then a move higher into the end.

Open Interest: As some of you know I have begun tracking when SPY pins on Wednesday and Friday. I began tracking Wednesdays since its inception and Fridays a bit after that. This next part is important – I am not defining pinning as the perfect pin. I am defining it in my own way that gives a range between noticeably high strikes of calls and puts. Noticeable is not scientific, but dependent on the other strikes around it. For example, if all the strikes on the call side are much lower than the put side then I’m not counting it as a high strike. I am doing it this way because from past experience low strikes don’t interfere with price and that is really all I care about for trading purposes. If that doesn’t sound like pinning to you then call it sassy-pinning. And further, if this way of doing it is not sufficient, then please feel free to do your own study. Since I am the one taking the time to do this, I am defining it in a way that helps me and my subscribers most. Finally, although I track the open interest movement for the week, only the Wednesday or Friday morning open interest counts for when I determine if price sassy-pinned or not.

Here are a few examples – not all are SPY because I analyze open interest for many stocks and this is just for illustrative purposes.

As long as price closed at or above the 133 puts I would call this a pin.


As long as price closed at or under 285 I would consider this a pin.screen-shot-2016-12-17-at-3-29-54-pm

Only a close between 190 and 200 I would consider a pin.screen-shot-2016-12-17-at-3-33-17-pm

Only a close of 115 I would count as a pin. screen-shot-2016-12-17-at-3-36-52-pm

This weeks open interest:

SPY-W: (13 of 14 for pinning): At the moment the best/most prominent pin is between 225 and 226, but with the 220 puts trumping everything, it tends to make those strikes seem meaningless. However, for now and based solely on this current open interest, it suggests a tight first few days in the market with little price movement. Should SPY lose Friday’s low with momentum then the next reference isn’t till 220, which I would definitely expect to hold barring some major news. Due to the the strikes being much lower near 225 and 226 I expect this open interest will shift a bit after the first day or two of trading this week (which I will post via twitter).spyw

SPY-F: (6 of 9 for pinning): At this point the Friday open interest is more favorable to the bulls then the bears due to the high put strikes surrounding the 224 level. There isn’t a whole lot of call resistance to hold price back if it gains strength, but there are puts beginning at 225 and mainly around 224 to hold price up unless bears really press hard. If price does get below 224 early in the week and the open interest doesn’t change much then it increases odds that SPY will bounce back by the end of the week. This would support the idea that there could be more consolidation/minor weakness before a further rally into the end of the year. spyf

In Sum, based on the current bullish trend that has been confirmed by breadth, further pullbacks are likely to be minor and buyable. Taking the information laid out above, namely the 52-week high minus 52 week low study, that 20-day highs being near oversold, and the open interest, the most likely outcome is another few days to weak of tight rangebound consolidation that may (but doesn’t have to) include further minor (but buyable) weakness followed by strength.

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