Open Interest & Set-ups for Week 10/24/16 – Sample

This was originally published form subscribers on 10/22/16

It’s groundhog day all over again. At the moment nothing has really changed. The market is still in a waiting period and it’s definitely doing a good job of breeding complacency. I want to point that out because I don’t want to get stuck in that mind-set. For now, yes nothing is happening and the range is the predominant factor every week; but there will be one week where it’s not and people that remain complacent will miss it while it is happening. I pointed about a month ago that this range trading might be the case till the election is over. I am starting to see other people point that out now and although that might end up happening, I don’t want to be caught off guard with that thought process. Point being, although next week I expect similar range bound action, I am still open to a range break and we should all stay aware of that possibility.

Also, one thing I’m noticing is that when very short term sentiment starts to get too bullish there tends to be a rather harsh gap down (in terms of short term levels). And the opposite is true when very short term sentiment gets to bearish (coupled with things getting oversold). Thus, assuming the range continues, we should be vigilant of that next week and possibly try to take advantage of it.

Breadth: For the most part nothing has changed from the last few weeks. The market is not being supported by the majority of stocks and at some point that will matter, but unfortunately it’s not a short term signal. However, it is a good reminder not to become too complacent and it is also a reminder that most rallies are not sustainable unless breadth improves. That is helpful in that when short term technicals seem bullish, we don’t want to fall into that trap and as I said above, maybe we should take advantage of it. Finally, one theme that also sticks out is that the market continually gets oversold, but thus far we haven’t seen anything getting overbought in the last couple of months. That would be more of a sign that distribution is taking place as opposed to accumulation.

SPX stocks 20-day highs: Nothing interesting going on here. It got oversold and now is bouncing. It has yet to get above 25% which could be a meaningful change if it did. 

SPX stocks above their 20-day MA: Not much to say here. It’s hanging in there, but unless this begins to markedly improve future SPX rallies will likely continue to fail. 

SPX stocks above their 50-day MA: As SPX continues to trade sideways, this is putting in lower highs and lower lows and a negative divergence.

QQQ stocks above their 20-day MA: The QQQ’s continue to be the strongest index, but as you can see below it’s not being supported by the majority of its components. Next week many tech companies will report earnings so perhaps this markedly changes, but for now it also is not supportive of future rallies or any new highs holding.

QQQ stocks at 52-week highs: As the QQQ’s continue to stroll along near highs, very few of its individual components are making new highs. 

MACD Weekly Bearish Crosses: There is no change. SPX, DOW, NYSE and IWM still have a weekly MACD bearish cross and the QQQ’s are still threatening a cross but not there yet. Perhaps after most of the tech stocks report we either get things turning back up or a definitive cross. 

SPX Short Term Technical Levels:

• SPX between 2160 to 2180 – neutral to bullish
• SPX above 2130 to 2160 – neutral
• SPX between 2120 – 2130 – neutral to bearish
• SPX below 2120 – bearish

Open Interest: Many of the usuals are reporting next week. Below I will display the open interest for them without comment and then tighten their ranges up and comment on their updated open interest after they report.

SPY-W: For now, and given that we are now 6 for 6 in terms of Wednesdays pinning we should assume that by Wednesdays close SPY will be over 213 with the best pin being 214. It does have more leeway to the upside if good earnings take things higher because the calls aren’t very high yet. And unless there is some material change from news or horrible earnings across the board, expect that if price gets to 213 or below it will bounce back up by Wednesdays close.

SPY-F: I’m going to call last week a miss in terms of pinning (even though it easily could be considered a hit) so we are 3 for 2 there. Next weeks open interest is more supportive of either more rangebound trading or any bullish case. One thing I find interesting is that for several weeks there is very little call resistance on SPY and yet SPY continues to trade very near and even often under put support. Rationally speaking, this seems to be more bearish and that only the puts are what continues to keep price held up (there might be more to it if indeed the Fed or whomever is keeping price held up – but maybe it is just that simple. Considering volume isn’t very heavy lately, funds and market makers that sold those puts can easily manipulate price). Anyway, the current best pin is 215 and there is a range from roughly 215 to 218 for now. Because of all the puts lined up from 214 on down, there is always that chance of delta hedging on a hard break of 214, but most likely only if that break came toward the end of the week (especially if the Wednesday 213 puts are still helping to support price). And as usual, there isn’t much call resistance. There is a bit at 218 and then not again till 221.

AAPL: Reports on Tuesday. 

AMZN: Earnings on Thursday.

BIDU: Earnings Thursday. 

FB: Very annoyed that this took off on Friday when I could not communicate to you all via TWTR. Perhaps some of you stopped out of your puts. There is a good chance I would have, but given I couldn’t communicate I decided to just hold though on them as I consider you my team :-). Plus, as of late there is very little follow through in this market so the breakout on Friday could end up being meaningless. Also, as I stated when I bought the puts, NFLX ripped into resistance and then proceeded to take a lot back for several days after. With that said, it did indeed have a very bullish close on Friday making a new all time high. I will see how things look at the start of the week regarding FB. On another note, be advised that FB is often largely affected by GOOGL’s earnings, which are on Thursday. In fact, FB is sometimes a better way to play GOOGL earnings because of all the premium GOOGL will have baked in. Regarding the open interest, from 130 to 133 there is a lot of call resistance. If FB is very strong at the start of the week it will push though all those calls and change the open interest, but for now we at least have that on our side unless price gaps above all of that and doesn’t look back. 

GOOGL: Earnings on Thursday. 

GS: After they reported they remained strong all week, but were not able to stay above 175. Next week it is already way above both the 165 and 170 calls strikes. When price opens way above highs strike calls it is very rare for them to come back down and in most instances rally pretty hard (an example could be NFLX last week after opening way above the 110 calls). Thus, this one is definitely on my radar for a long next week. I would look to get in on any pullback above 170, but my guess is there won’t be any meaningful pullback and once it gets over 175.80 it will just keep going. I do not like getting into calls Monday morning so if it gaps and runs I may decide to hold back and wait for a mid-week opportunity. Targets would be 177.50, 180 and possibly 182. With all that said and knowing follow through has been rare recently you never know. If it got under 173 and stays there too long then it may be in jeopardy of being a failed breakout. 

NFLX: Last week could be an example of what would happen on great earnings from one of the other momo’s. It had a very big Friday and is already above all those 125 calls. I don’t want to say that the 125 calls would bring price back in cause NFLX doesn’t care when there is high calls, but I also don’t necessarily want to recommend chasing it at these levels. I think it likely will need to cool down soon (although it’s possible it sees 130+ before it does). Pullbacks over the next couple months are likely all great opportunities to get long. In fact, for next week even with the 125 calls there I would say there is a good chance any pullback NFLX has will be limited to that level. Only if price gets below 125 and keeps falling (as opposed to basing sideways) would I think it might be in for a bit more trouble. At the present time NFLX is a buy on pullbacks into support. If price gets back to 125 and hangs there for a day or two I would look to get long into the following week. 

TSLA: Earnings Wednesday.

Set-ups: