Are Bulls for Real or Will a Bear Appear?

Last week here I wrote that I am  “still not convinced that the lows for the year were in and after last week am more convinced that they are not. Having said that, I do think the market will bounce first before moving lower.”

That worked out well and my view has not changed. Having already bounced last week the next question becomes how much (if any) bounce is left?

Overbought/Oversold: This is best used at turning points, but always good to get a look at where they are in the cycle each week (or day – which I do).  Note “2015 style” refers to the tight range of overbought/oversold readings that have led to bounces or pullbacks this year as opposed to previous years that saw much larger ranges before reaching overbought or oversold.

SPX stocks at 20-day highs: This is near (but still has some room) before being overbought 2015 style. Screen Shot 2015-08-01 at 1.49.48 PM

SPX stocks at 20-day lows: Has reached levels consistent of being short-term overbought 2015 style, although it has consistently shown that it can stay low for a few days at a time. Screen Shot 2015-08-01 at 1.53.23 PM

SPX stocks above their 50-day MA:In no-mans land, but continuously making lower highs for now (in case you haven’t already heard that the market has bad breadth). Screen Shot 2015-08-01 at 1.55.49 PM

SPY open interest and levels: Taking the open interest at face value first suggests that price will continue to gravitate to the 210/211 level and second, suggests a more neutral to bearish week is upon us. With all the calls at 211, 213 and then 215 there is less risk/reward to the upside than the downside. Below is a quick outline to help navigate your way through trading next week, but is really most significant for the beginning of the week due to possible open interest changes throughout the week. If you are interested in daily analysis and guaranteed updates consider my premium servicespy

  • SPY below 210 –  First assumption is to buy the dip because of the 210 puts. If any bounce doesn’t get SPY to 210 (or after reaching it we fall below again) then I think it’s probable we go lower with a the first target being 208.
  • SPY at or below 208 – First touch I think is a buy. Upon a second touch I think the market has a target of 207 than 205.
  • SPY between 210 and 211 – Nothing to do.
  • SPY over 211 – First thought is it will pull back to below 211, but if it can hold than possible target of 213. I would be surprised if 213 gets taken out, but if it does and we make new highs, I think market will probably be getting ready to head back down and likely begin a larger correction.

Good Luck next week and again, if interested in daily updates and analysis, real-time option trades of individual stocks and ETF’s consider subscribing here.