Last week here I discussed that the environment still looked more favorable to selling rips then buying dips, but that the election was a wild card. I went further to say that if there was a large rally to watch the overall breadth to determine the strength of the rally and if it would likely continue or be given back.
Overall: The overall breadth is showing strength and in some areas broke its recent range. There are many disconnects currently that could just be a matter of rotation, but often when these disconnects occur there is one more flush before the rally gets legs. Since that is only anecdotal discussion, I believe it should be something to keep in mind, but you know (insert the usual disclaimer here). With OPEX next week the open interest favors a flattish to up week, but again remain open minded to the possibility that there is a pullback (not talking only 1%) coming before a sustained rally.
Stocks at 20-day highs: Highest move since the Brexit spike. Should this continue to make a higher high then it will help confirm buy the dip is back in style. Notice after the initial Brexit thrust SPX remained rangebound for months as 20-day highs continued to wane.
SPX stocks above their 20-day MA: It got to the top of its recent range and stopped. Further strength would equate to an increased likelihood of a sustainable rally.
SPX stocks above their 50-day MA: similar comments to the above.
QQQ stocks above their 20-day MA: This is the weakest link and likely will continue to be for the time being; however watch for either positive divergence developing or a range break to confirm strength coming back in.
QQQ 52-week highs minus lows: Clearly this needs more work and as said above will likely continue to be the weakest link (even if it bounces next week).
Open Interest: Next week is monthly OPEX so the Friday one has been developing for a long time and tends to have more sticking power.
SPY-Wednesday: 8:9 regarding pinning since inception.* Taken at face value suggests that 215 would hold on any pullback and that SPY will close at or above 215.5 on Wednesday. The current best pin is 216. This one has more chances of changing if something drastic were to take place Monday and Tuesday since they are newer and less widely used.
SPY-Friday: 3:5 for pinning since I began official tracking.* The highest strike puts begins at 212; thus any pullback to that level likely holds and SPY likely closes above that level on Friday. As always when there is many high put strikes lined up as there are below I will give the disclaimer that if price gets below 212 on strong volume then it could lead to delta hedging and quickly drop hard (this is the the exception not the rule). The current best pin is around 215, but its not a very prominent pin and has some room on both sides.
In sum, it seems as if the market is transitioning from sell the rip to buy the dip, but there is still some missing pieces and one more flush lower could provide the aliment to those disconnects. With that said the open interest next week favors more sideways to higher so slight dips next week might provide short term upside.
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