Price Action Says to Stay in May

Last week there was no post, but in previous posts, both at the end of March and the beginning of April (see here) I continued to suggest that SPX would likely get to old highs or make new ones before a more meaningful correction took place. That has now been achieved as SPX went within 2 points of its all time high last week. I believe the current price action suggest that the bulls will likely take SPX to new highs in the next couple of weeks and minor dips continue to be buying opportunities.

Open Interest:

SPY-W: (26 of 33 for pinning since Wednesday expiration inception).*  The current open interest suggests that SPY will close at or below 240 at Wednesday’s close. Thus, any move early in the week toward that level is likely to fail if it doesn’t shift the open interest. At the moment there isn’t much put support to the downside and technical levels will have to suffice. If the open interest does look the same come Wednesday and there is a late day move over 240 (FOMC day) it’s probably best to not fight it because a late day move based on news on expiration day can sometimes be strong enough to push through the high calls. Stay tuned for updates of this via twitter throughout the week

SPY-F: (20 of 28 for pinning since I began tracking).*  The current open interest suggests a pin around 238, but this has plenty of time to change. If SPY were to breakdown again next week and move below the strong support level of 235 then there is good put support at 233. To the upside, the bulk of the resistance is at 240 and 241 which comes as no surprise, but isn’t yet so strong that this couldn’t shift by a large move earlier in the week. 

In sum, the path of least resistance remains higher and there is likely to be a new high in the coming weeks. Given both the Wednesday and Friday open interest, coupled with the 240 technical resistance level, SPY will likely need a catalyst to get it over that level (FOMC Wednesday and Jobs # on Friday). Any move over 240 early in the week without shifts in the open interest make it more vulnerable to fail by Wednesday’s expiration. However, should SPY stay below 240 and only push over that level late Wednesday afternoon with strong momentum, then it is probably best to go with it instead of trying to fight it – especially given that the Friday open interest can easily shift with more put support and less call resistance.

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*An explanation as to how I define pinning can be found here. More information about what pinning is can be found under the education section of my site.

Wednesday 4/26: successful pin. 

Friday 4/28: Successful pin.

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