Last week I titled my post Was Friday’s Bullish Candle a Trap? I was of course referring to the huge rally on Friday 1/29. Now we know the answer. Yes, it obviously was because the only day that went higher last week was Monday. From there on the market took back all of 1/29 gains and then some. So now what?
The trend is obviously down and if you have been in denial about that, perhaps you have finally joined the bear camp. Having said that, the market did close a tiny bit higher than the low made on Wednesday and whether that will be a short term higher low for a bounce or we lose it and follow through to the down side remains to be seen. Going into next week the path of least resistance is down, but let’s not forget it doesn’t always happen in a straight line.
The market is currently not oversold or overbought in the short term, so it’s going to be a matter of if price can stay above 1872. That includes a scenario in which 1872 is undercut, but then quickly recovered. Below is a weekly chart. Over the next couple weeks will there be a W (not necessarily to a higher high) or will price bust through to the downside with follow through? 
On Friday when SPX fell back lower to the 1887 level, it did so with improved internals from recent trend down days (ratio adjusted advancers/decliners is show below), and a higher RSI. There were also much fewer negative 1000 TICK readings on Friday than recent trend down days. That could be interpreted as the selling was very controlled and not panicky and thus, will likely continue next week, or that selling has been drying up in the near term. 
SPY Open Interest: Taken as face value this could be seen as more bullish in that there is a lot more support with the heavy put strikes at 185 and 183 than call resistance, but that is a simple statement without context. If 187 is lost and not recovered, it’s hard to imagine a scenario where 185 and 183 will not be tested; however, if 187 does hold, than there is lots of room to head higher without call resistance for now.
The basics: Although the close on Friday was definitely bearish, don’t assume the market will just go straight down. That would have been similar to assuming Friday 1/29 was very bullish and would lead to follow through. I gave parameters last week that worked very well for anyone paying attention. For next week, if SPX stays below 1872, then assume all bounces should be sold and price is likely headed to 1850, and then near or below 1812. Above 1920, there could be some room to rally to either make a higher low from the 1940 level or a higher high that will squeeze shorts. In between 1872 and 1920 is just chop. Yes that is a large range, but recently SPX can do that in just one day.
China is closed next week for the New Year so for those in the W formation camp there is always the idea that when the cat’s away the mouse will play.
The better plays in my opinion will be to sell the bounces in the tech/high beta sector (because as you can see by LNKD they can be extremely profitable) and to look for potential long plays in energy and quality names. If you want ideas on how to do that as well as real time entries and exits come join us at SassyOptions.
Good Luck!
Is there any Silver Lining for Next Week?
Last week I titled my post Was Friday’s Bullish Candle a Trap? I was of course referring to the huge rally on Friday 1/29. Now we know the answer. Yes, it obviously was because the only day that went higher last week was Monday. From there on the market took back all of 1/29 gains and then some. So now what?
The trend is obviously down and if you have been in denial about that, perhaps you have finally joined the bear camp. Having said that, the market did close a tiny bit higher than the low made on Wednesday and whether that will be a short term higher low for a bounce or we lose it and follow through to the down side remains to be seen. Going into next week the path of least resistance is down, but let’s not forget it doesn’t always happen in a straight line.
The market is currently not oversold or overbought in the short term, so it’s going to be a matter of if price can stay above 1872. That includes a scenario in which 1872 is undercut, but then quickly recovered. Below is a weekly chart. Over the next couple weeks will there be a W (not necessarily to a higher high) or will price bust through to the downside with follow through?
On Friday when SPX fell back lower to the 1887 level, it did so with improved internals from recent trend down days (ratio adjusted advancers/decliners is show below), and a higher RSI. There were also much fewer negative 1000 TICK readings on Friday than recent trend down days. That could be interpreted as the selling was very controlled and not panicky and thus, will likely continue next week, or that selling has been drying up in the near term.
SPY Open Interest: Taken as face value this could be seen as more bullish in that there is a lot more support with the heavy put strikes at 185 and 183 than call resistance, but that is a simple statement without context. If 187 is lost and not recovered, it’s hard to imagine a scenario where 185 and 183 will not be tested; however, if 187 does hold, than there is lots of room to head higher without call resistance for now.
The basics: Although the close on Friday was definitely bearish, don’t assume the market will just go straight down. That would have been similar to assuming Friday 1/29 was very bullish and would lead to follow through. I gave parameters last week that worked very well for anyone paying attention. For next week, if SPX stays below 1872, then assume all bounces should be sold and price is likely headed to 1850, and then near or below 1812. Above 1920, there could be some room to rally to either make a higher low from the 1940 level or a higher high that will squeeze shorts. In between 1872 and 1920 is just chop. Yes that is a large range, but recently SPX can do that in just one day.
China is closed next week for the New Year so for those in the W formation camp there is always the idea that when the cat’s away the mouse will play.
The better plays in my opinion will be to sell the bounces in the tech/high beta sector (because as you can see by LNKD they can be extremely profitable) and to look for potential long plays in energy and quality names. If you want ideas on how to do that as well as real time entries and exits come join us at SassyOptions.
Good Luck!
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