A Rumbling Below the Surface

Last week in a post titled Reasonable Expectations I wrote:

In sum, I wish I had something more impressive to say, but I’m not going to spend time trying to find something that makes me sound smart. The upside seems limited, but trying to time a short without a signal isn’t attractive. Thus for short term traders, next week once again deserves patience, pullback opportunities, and mostly individual stock opportunities.

The above pretty much summed up how last week went. I pointed out last week that for SassyOption members we were focused on individual stocks that had room to run without chasing. We did very well with that regardless of the lack of momentum in the overall market.

SPX finally broke out on Friday and typically the high is not made on a Friday so there is likely more highs next week. With that said it doesn’t mean there is a lot more upside or that once a high is made there won’t be a pullback. Thus far SPX has worked off being overbought through time. Although that can lead to further gains, there is still a likely pullback lurking (at least to retest the breakout area around 2134). As I said last week, that doesn’t mean I am a bear or that I am suggesting to begin shorting; however, as a short term trader (especially with options) I would be wary of any euphoric or FOMO feeling that presents itself in the next week or two. Definitely try to ride it (short term traders), but keep in the back of your mind that it is usually when accounts get very long and then the rug gets pulled.


SPX stocks above their 20-day MA: At this point SPX seems to be getting a little ahead of itself. This can last for a while (think 2015) so it’s not any type of immediate signal. It’s something to take note of and monitor.Screen Shot 2016-07-30 at 5.28.42 AM

SPX stocks above their 5-day MA: currently it’s not overbought or oversold short term.Screen Shot 2016-07-30 at 5.31.28 AM

SPX stocks at 20-day lows: When this begins to perk up it is often a caution sign as the first pop isn’t usually where it ends. Think of it like an earthquake. Before the actual quake that everyone feels, there might be some small rumblings (shifting) of the tectonic plates that come closer and closer in time until it hits. Last week we got a little rumbling.  Screen Shot 2016-07-30 at 5.32.11 AM

Volatility tends to increase at the end of July and continue through September: Thus far this pattern has been absent, but……. Screen Shot 2016-07-31 at 9.34.55 AM

SPY Open Interest: Taken at face value this looks like the upside will be limited or that any upside over 217/218 will be given back by the end of the week (unless this open interest dramatically shifts). There is some put support around 215/216 (an area with a good deal of technical support), but then not again till 212. For now, I would assume further highs will be given back by the end of the week and that anything under 215 will be bought back up. However, it would also be a warning sign, similar to the 20-day low spikes. spy

In sum, I do believe another high will be made, but that gains will be limited and/or given back by the end of the week (Friday is jobs #). Pullbacks next week may also be limited to 215 or bought back up if price gets below there. However, if price gets too far below 215 (under 214) or gets below there more than once, then there isn’t much support till 212/213 where there is also some gaps to be filled. Also of note, the end of July/beginning of August tends to be the start of one of the most volatile times of the year. Thus far volatility has been absent, but the above I believe is a warning that it is lurking and I would be wary of a euphoric ‘everything looks good’ moment in the next week or two.

July was a great month for SassyOptions. For those struggling or just looking to learn more consider joining us. Members receive daily analysis and intra-day commentary, set-ups, and real time trade alerts.