Possible New High Targets Seen in the Open Interest

Last week here I went into length about reasons to be concerned with the long side (especially for last week because of the open interest), but pointed out that the overall trend remained bullish. I also described two separate breadth studies that concluded a pullback would likely be short-lived. In the end a gap down Monday morning became the pullback and despite the the difficulty SPY had getting back into the above gap, the bullish trend remained intact the entire week (see the chart below).

Given that 1) the trend remained intact,  2) the breadth studies from last week suggested the pullback would be bought and 3) the 227 puts began to build on the SPY open interest, there was more evidence suggesting to get long into the pullback then short in the hole.

Trend on SPY never broke: Screen Shot 2017-02-03 at 5.24.48 PM

Breadth: As I mentioned last week, I will not be analyzing breadth on the majority of my public posts. If you missed my comments from last week I suggest you go back and read them because the concerns I brought up continue to hold true. Keep in mind they are not a timing mechanism unless at an extreme, but a “hey heads up” sort of tool.

Open Interest:

SPY-W: (17 of 21 pins since Wednesday expiration inception).*  The current best pin for Wednesday is between 229 and 230, but the near term calls and puts are low enough that it can easily shift at the start of the week. Below 229 there currently isn’t much put support. Above 230 there are currently high calls that will likely act as resistance at 232. SPYW

SPY-F(12 of 16 pins since I began tracking).* The current open interest range is 225 to 230 with the best pin also being between 229 and 230. Should SPY be able to get over 230 sometime next week, bulls would want to see the open interest shift so that it faces less risk of falling back to or below the high calls by Friday’s close.spyF

In sum, despite some breadth concerns (that you can see in last weeks post) and last weeks pull-back, the current trend remains bullish and SPY is likely to continue to a new high. There isn’t much call resistance until SPY 232 for Wednesday expiration and should price get there, bulls would want to see a shift in Friday’s open interest so that the 230 calls don’t bring price back down.

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*An explanation as to how I define pinning can be found here.

Wednesday 2/1: SuccessScreen Shot 2017-02-01 at 4.10.40 PM

Friday 2/3: Success.Screen Shot 2017-02-03 at 4.00.54 PM 1