Last week here I said that there was likely a new high coming, but that gains would likely be limited to 218 SPY. I also said that if SPY dips below 215, it was likely be a buy. There was a new high, there was a pullback below 215 that turned out to be a great buy, and gains being limited is up for debate because it did in fact make a high of 218.23. Next week I have similar comments in that there will likely be another high again, but the gains will likely be limited by the high calls at 220 or given back if price gets over it.
Breadth: There isn’t much to say here that isn’t similar to last week. We are not short term overbought or oversold. Stocks above their 20 and 50 day MA’s have a little catching up to do with price, 52-week highs are also lagging, but none of that is tradable in the short term. On a longer term perspective price is being supported with strength in stocks.
SPX stocks above their 20-day MA
SPX stocks above their 50-day MA
SPX stocks at 52 week highs: This has been falling behind and if it doesn’t begin to play catch up it will be difficult for the market to go much higher. However, with the very promising potential for some rotation out of utilities, staples, etc we may see some 52-week highs in lagging sectors.
SPX stocks above there 200-day MA: longer term perspective still demonstrating strength and support of price.
Open Interest: Similar to last week the high strike calls outweigh any of the high strike puts. That of course still resulted in higher highs, but as stated above were limited. There is high calls at 219, but the real call resistance comes at 220 which is near SPX 2200. History tells us that price often struggles at round numbers, often even failing to hit it on the first try. Regardless if history will repeat in the same way or not, unless the open interest changes price will either fail at 220 or fall back through it if it gets over (unless it is the very end of the week and just barely gets through similar to this last Friday). Thus, if price gets over at or over 220 at the start of the week, there will likely be a pullback soon after. If, on the other hand, price falls at the start of the week without making a new high first, dip buyers will again likely step in. At this point there is not much put support so technical levels should be watched. A drop below 217 could result in a swift drop due to delta hedging as well as a failed breakout.
In sum: The market strength on Friday is likely to lead to new highs being made; however be aware at the limitations the current breakout has in the near term. Should SPX fall before making a higher high next week, technical support levels will likely be quickly bought. If on the other hand the week begins strong and the open interest doesn’t shift, be aware of a pause and likely pullback as the week progresses. Below 217, should raise many caution flags.
Finally, don’t forget that although history is not currently being represented, August does start a period of high volatility. Seasonality is not a signal in itself; however, it would be remiss not to acknowledge it especially as the VIX closes outside of its lower bollinger band. This is not a signal to be bearish or to get short, this is a signal to not get complacent especially as a short term trader.
Despite the market slowly stair stepping higher for several weeks, there has been plenty of big moves in individual stocks (i.e. BIIB last week, which we at SassyOptions had at $0.15 and sold a piece for $16.20 after making it a free trade before the big move). That is an extreme example where luck meets hard work and those only come around once in a while, but there has been other good movers as well. If you have been missing out consider joining SassyOptions for daily market commentary, technical support/resistance levels and real time trade alerts.