Strength Begets Strength

Last week here I said the path of least resistance remained higher and that SPX was likely to make a new high in the coming weeks. I also discussed the heavy call resistance for both Wednesday and Friday’s expiration. In the end, the call resistance did hold SPY back for most of the week, but the late day move on Friday resulted in an all time closing high on SPX. Furthermore, SPY closed above its high calls in the open interest, which tends to be bullish going forward. Thus, a new intraday high is likely coming next week; however, should there be a large gap down due to the French election or other global mishap this weekend, then it may take a bit longer to get to those new highs. With that said, new highs are still likely coming in the next couple of weeks and thus, any large gap down would be a great buying opportunity (i.e. Brexit).

Last weeks Premium Open Interest Analysis and Strategy Piece (available weekly for a small price) highlighted GOOGL as a good long with this:

The low on Monday morning was 920.80 and the high 959. The strategy piece would have been a small price to pay for an excellent trade.

Full premium members who have access to all day commentary and real time trade alerts also got an excellent trade from my alerts on GOOGL well as both NFLX and TSLA last week.

Open Interest:

SPY-W: (27 of 34 pins since Wednesday expiration inception).* SPY closed above its high calls on Friday, which tends to have a bullish bias the following week. With that said, SPY will have to contend with the high calls at the 240/241 level that expires on Wednesday. That may not be a huge problem for reasons I go into below. First, if the market gaps above that level and continues higher then the open interest can easily shift. Furthermore, even without a gap, if price is able to get over 241 early in the week then the open interest still has plenty of time to shift. Note that the longer price stays stuck under 240, the harder it will be to get over that price until after expiration. Second, when SPY closes above its high calls (as it did Friday) it sometimes repeats that in the following expirations. For example, SPY closed above its high calls on Friday 2/10 and then did so again Wednesday 2/15, Friday 2/17 and Friday 2/24. Strength begets strength. To the downside there is put support from 235 to 238. The best scenario for bulls is likely to see a gap and go early in the week. 

SPY-F: (20 of 29 pins since I began tracking Friday’s).* This open interest is more conducive to bulls as there is only a small amount of call resistance at 240 to 241 and nothing else. Thus, based on both the Wednesday and Friday expiration, if price is able to hold above 241 there is no call resistance above those points (at least not yet). If price stalls below 241 the first part of the week, but this open interest doesn’t change much, then perhaps there will be a further breakout after Wednesday. To the downside there is a good deal of put support at 236; so, if Friday was a false break-out or the market gaps down hard Monday morning (perhaps due to the elections) then it’s likely a buying opportunity as price is likely to close above 236 by Friday.

In sum: The path of least resistance remains higher and there is a good chance that SPX makes new highs next week. Price closed over its high SPY calls on Friday, which usually leads to higher highs the following week and  often price will close over its high calls in the following expirations. The open interest for both the Wednesday and Friday expiration shows resistance at the 240/241 level, but over that level and there is nothing in the way of higher prices. Should Friday have been a false breakout or there is a very large gap down Monday morning, then once price finds support it’s likely a great buying opportunity as price is likely to close above 236 by Friday expiration and make new highs in the next couple of weeks.

If you missed out on last weeks moves or feel you could benefit from extra guidance and education, consider becoming  a full premium member for access to all day commentary about the market and real time trade alerts.


For just next weeks open interest and technical analysis on several high beta momentum stocks (similar to last weeks notes above on GOOGL)  you can purchase next weeks strategy piece here.

*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 5/3: successful pin. 

Friday 5/5: Failed pin to the upside.

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