Can QQQ’s Get Some Love? And What’s with the 215 SPY Calls?

Last week here I made the case for higher prices, but that they would likely either be slow or hampered. Indeed prices rose, but then were hampered. The week was no doubt challenging as there were may disconnects that began Wednesday and went on through the rest of the week.

Over TWTR and Stocktwits on Wednesday I highlighted that the TICKS and internals were not showing much weakness despite the weakness in price. If you continued to watch them on the down moves both Thursday and Friday, you either did well buying the dip or you saved yourself from shorting. As I said the last few weeks, until selling pressure picks up, the bulls have the edge. That can happen as early as Monday, but without seeing it first, shorting will remain very challenging.

Breadth update: There isn’t much to update in the general picture. Breadth measures aren’t keeping up with price as well as they were off the lows in February, but they also aren’t falling apart as they were throughout 2015. At this point they are still suggesting that any future gains will likely be capped (limited) without some type of pull back or consolidation that allows breadth to catch up. Thus, keep an eye on them, but know they are only the ingredients, not the finished product.

SPX stocks making 20-day highs: Just meandering about. Screen Shot 2016-04-23 at 12.49.01 PM

SPX stocks making 20-day lows: Very small caution signs beginning to show up, but they continue to remain very low.Screen Shot 2016-04-23 at 12.49.58 PM

SPX stocks above their 20-day MA: This perhaps is a bit more concerning as individual stocks are beginning to move back below their 20-day moving averages. On any further new highs in the coming weeks bulls want to see this improve.Screen Shot 2016-04-23 at 12.50.38 PM

SPX stocks above their 200-day MA: Taking a more intermediate/longer term view, breadth is indeed keeping up with price. This suggests that pull-backs are likely not to end in crashes in the near term. Hence, to the bears reading this, careful with your near term ambitions when the market pulls back.Screen Shot 2016-04-23 at 12.51.24 PM

Finally, one thing of interest is the disconnect between sectors. Rotation can go a long way, but eventually if bellwether stocks and sectors (i.e. QQQ’s and high beta momentum stocks) can’t begin to stabilize, it will be difficult for the market to continue making new highs. Look for the potential of mean reversion next week with tech outperforming while small-caps and financials consolidate a bit. This would strengthen the bullish case.

SPY Open Interest: Last week I showed the 210 call strike as being very heavy (for a refresher you can read about them here). In the end those 210 calls remained there all week and whomever bought them didn’t take the chance to sell early in the week. Recall that the buyer had already sold two-thirds of his/her original position for a profit and then likely rolled them to this coming weeks 215 calls. Again, we can’t know if it is a lotto, a hedge, or someone that thinks they know something. What we do know is that most of the time a far out cheap option similar to the 215’s usually end up worthless. Thus, if SPY is able to get back above 210 and stay there (which means it also has to get above the high 210 strike), it would be prudent not to set your expectations too high. In fact, if SPY gets above 210 and those 210 calls remain open as the week progresses, price may once again retreat below them by the end of the week (so check for updates). Having said all that, there is also the scenario that SPY never makes it over 210 next week. In that case using technical support levels (207.91, 206.25, 205.15) is necessarily as there is no put support nearby to price.spy

SPX levels of support and resistance:

Under Friday’s low: 2069, 2053, 2040

Over Friday’s high: 2104, 2111, 2116, 2134

In Sum, the edge lies with the bulls as every sell-off has been very shallow and quickly met with buyers. Although there are slight divergences stacking up that may lead to more consolidation or shallow pull-backs, there is currently no indication for a large down move in the near term. As long as SPX closes above 2020 the intermediate uptrend remains intact. In the short term, bulls want to see price continue to close above 2053.

Final note: I can’t reinforce enough how important it is for short term traders to watch internals (advance/decline, up/down volume, TICKS) and individual sector strength (financials, small/mid caps, biotech’s etc) throughout the day to help inform them how weak/strong the market is behind the surface. Trading isn’t only about your good trades, it’s also about the bad ones you do NOT take. A lot of money can be saved by not taking trades that are going against what the (lack of) internal strength of the market is telling you.

For more thorough analysis and updates on all the internals throughout the day come join SassyOptions. Members receive two thorough posts each weekend along with intra-day analysis and real time trade alerts during the week. Last week we had a total of eleven fully opened and closed trades. Six losses and  five wins (160%, 54%, 53%, 30%, 25% – all taking into account scaling out). For a sample of last weeks weekend posts see Open Interest for Expiration 4/22/16 and Set-ups and Game plan for 4/18/16  which I have unlocked.

Current member testimonials