SPY Open Interest and What’s Next

Before I begin, I just want to give a shout out to @traderstewie (who btw is a must follow if you aren’t already following him) for giving me the idea to change my blog name, which then motivated me to change my twitter handle (@Sassy_SPY) to something easier to remember and more fun :-).

And now the markets:

So was that it? Was that the ‘sell in June or be a buffoon’ we were waiting for/open to? Are we back to our regularly scheduled program of ‘Bashing the Bears & Putting Them to Shame?

My guess is probably not. I imagine June will have some choppy waters for us to navigate, but for now I’m going with the flow and therefore remain bullish. Last week we dropped below the 50 day moving average only to pop right back up in a very text-book (almost too text-book) manner. If we gap up Monday morning and don’t fill the gap in the early morning, then I think the most probable scenario is that we remain above 1640 and test or surpass old highs of 1687 in the coming week(s) (especially if we close Monday above the gap). However, there is also another scenario that I can see play out and will be on the lookout for. If we open Monday and lose 1640 (or gap down below it) and don’t quickly recover, then I would expect a test back to the low on Friday around 1625 or maybe even fill the gap around 1622. If we fail to hold 1622, I will prepare myself for a retest of the 1598 area and more than likely a little lower than that.

Last week the options market didn’t give us many clues as to what direction we were headed, which tells me there was less confidence in what was going to happen. As for next week, we again don’t have any major clues yet; however since there is more positioning in the puts (but not in a atypically high volume way) I view it as more bullish. Here is what SPY open interest looks like for next week. In terms of just the options (not taking into consideration technicals) as a bull I would feel more comfortable if we remain over 163.

On Friday, I got long some stocks that had been on my watchlist and broke out. I held most of them over the weekend leaving me positioned fairly long right now. I bought some SPY put protection just so I could sleep at night, but I won’t be a happy camper if we don’t have strength at some point on Monday. I see some great looking set-ups going into next week assuming that the “text-book” reversal we saw on Thursday wasn’t some sort of bear trap. I will be posting charts throughout the weekend of stocks I like going into next week (some of which I am already long).  I will narrow them down for my own watchlist, but hopefully you get some good ideas from them. And definitely feel free to comment when you agree/disagree etc. As usual, I will update the SPY open interest throughout the week and maybe some other OI charts on high betas.

Enjoy your weekend!