The Path of Least Resistance is Higher

Note: I will be on Fox Business Tuesday at 4:00 pm so please tune in :-).

Last week here I wrote that the most likely scenario would be a choppy start to the week followed by a rally in both equites and treasuries. That was right on and those prepared for it were paid handsomely.

Keeping it simple: Currently SPX and QQQ are close to highs (QQQ, 52-week not all time highs) while the IWM closed the week at all time highs. Without over complicating this market, the simple message is, the trend is higher. The market has been in a trading range for months with the most recent dip making a higher low. It’s very possible that it will fall right back into that range, but the risk/reward right now favors more upside.

The daily MACD just crossed bullish as you can see below:Screen Shot 2015-03-21 at 1.49.59 PMand we are trading in a channel that suggests we can go higher to reach the top of the channel, currently near 2150 SPX:

Screen Shot 2015-03-21 at 1.51.45 PM

I don’t necessarily anticipate that this will all happen in one week, but I wouldn’t try fighting it either.

Clues from SPY open interest:

As you can see below, the first large call strike is at 211 and then 213. This can definitely act as resistance if we can not get over 211. SPY closed Friday at 210.41 and the most bullish scenario would be a gap up over 211 Monday that doesn’t look back. If SPY can get and stay over 211 then delta hedging by market makers (read more about that here) would likely send it straight to the next heavy call strike at 213. If on the other hand SPY does not make it over 211 early in the week, then expect some chop with first support being at 209.50/210. Below that and it’s possible (although I currently see as less likely next week) that we revisit the breakout area where we rallied from after the FOMC announcement around 207, then 206 where those higher puts are. spy

Simply stated, the trend is higher, but not being able to get and stay above SPY 211 early in the week may result in a choppy to lower week. I see strength for next week coming from financials as well as momentum tech names so look there for clues.

I have some open interest analysis on a few of the momentum stocks on my Facebook page here.

Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.

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