Last week here instead of just writing about what I expected from the market as a whole (since my expectations were of mostly a grind) I gave some stock ideas. All of the ones that triggered except for one reached at least its initial target (with room for more) and one is still on its way. The failed set-up had a stop that would have been triggered. Hopefully some were able to benefit.
Path of Least Resistance: After such a very tight rangebound low volume week and the start of a new month the expectation would be for the range to break and currently the path of least resistance is higher. The majority of November has seen a rangebound market digesting the gains that came after 2020 broke to the upside mid-October. There was even a successful retest during that period and now SPX is threatening to once again break 2100. With one month left to go this year and the SPX up less than one percent it wouldn’t take much for funds who are mildly underperforming to do a little bit of chasing and end the year positive. Also, December is a seasonly favorable month for the market. Finally, with the financial (XLF), biotech (IBB), small cap (IWM), and transportation (IYT) sectors either just getting a bullish weekly MACD cross or threatening one, the argument for risk on and higher prices becomes that much stronger. 
Hunker down those expectations? The market is not overbought and not oversold and an argument can definitely be made that it will remain rangebound until the FOMC rate decision later this month. Moreover, the market has been nothing short of tricky with false breakouts and breakdowns all year, so more of that should come as no surprise. Thus, although the path of least resistance is higher, perhaps having mild/realistic expectations of how far higher the market will go before the FOMC minutes would be prudent.
SPY Open Interest: SPY has struggled to stay above 211 since the summer. Prior to the summer, when SPY was above 211 it was not for very long. With SPY consolidating below 211 for most of November, that will once again become a big level or resistance. Furthermore, as you can see below 211 has the highest call strike. If SPY is able to break that level and remain above it then there is no call resistance till 215; however, it does have technical resistance pretty much at every level from 211 to 214’ish. Below 210 (Friday closed at 209.56) there is minor put support at 208 and 206, but much stronger put support at 205. 
Wrapping it up: The majority of the volume in 2015 has been in the 2050 to 2130 range. We already had a swift range break that resulted in a 10% correction earlier this year. It’s possible that was a warning sign that further downside is likely and may become a reality for 2016. The other side of that is after a year of consolidating and a 10% correction the market is setting up for another leg higher. Regardless of the outcome, be mindful of further false breakdowns/breakouts because the next true direction may not happen until after the FOMC decision or this year ends.
SPX levels of significance:
- 2078 and 2097 is essentially directionless.
- Support below 2078: 2071, 2062, 2055-2058, 2034, 2020.
- Resistance above 2097: 2100, 2103, 2113 and 2116.48.
With the very possible scenario of continued frustration in the overall market until the FOMC decision, the better way to generate alpha for short term traders is through individual stocks or sectors. If you have struggled to find those or find yourself underperforming consider joining us at SassyOptions for daily analysis, set-ups and real time trade alerts.
Is the Path of Least Resistance too Ambitious?
Last week here instead of just writing about what I expected from the market as a whole (since my expectations were of mostly a grind) I gave some stock ideas. All of the ones that triggered except for one reached at least its initial target (with room for more) and one is still on its way. The failed set-up had a stop that would have been triggered. Hopefully some were able to benefit.
Path of Least Resistance: After such a very tight rangebound low volume week and the start of a new month the expectation would be for the range to break and currently the path of least resistance is higher. The majority of November has seen a rangebound market digesting the gains that came after 2020 broke to the upside mid-October. There was even a successful retest during that period and now SPX is threatening to once again break 2100. With one month left to go this year and the SPX up less than one percent it wouldn’t take much for funds who are mildly underperforming to do a little bit of chasing and end the year positive. Also, December is a seasonly favorable month for the market. Finally, with the financial (XLF), biotech (IBB), small cap (IWM), and transportation (IYT) sectors either just getting a bullish weekly MACD cross or threatening one, the argument for risk on and higher prices becomes that much stronger.
Hunker down those expectations? The market is not overbought and not oversold and an argument can definitely be made that it will remain rangebound until the FOMC rate decision later this month. Moreover, the market has been nothing short of tricky with false breakouts and breakdowns all year, so more of that should come as no surprise. Thus, although the path of least resistance is higher, perhaps having mild/realistic expectations of how far higher the market will go before the FOMC minutes would be prudent.
SPY Open Interest: SPY has struggled to stay above 211 since the summer. Prior to the summer, when SPY was above 211 it was not for very long. With SPY consolidating below 211 for most of November, that will once again become a big level or resistance. Furthermore, as you can see below 211 has the highest call strike. If SPY is able to break that level and remain above it then there is no call resistance till 215; however, it does have technical resistance pretty much at every level from 211 to 214’ish. Below 210 (Friday closed at 209.56) there is minor put support at 208 and 206, but much stronger put support at 205.
Wrapping it up: The majority of the volume in 2015 has been in the 2050 to 2130 range. We already had a swift range break that resulted in a 10% correction earlier this year. It’s possible that was a warning sign that further downside is likely and may become a reality for 2016. The other side of that is after a year of consolidating and a 10% correction the market is setting up for another leg higher. Regardless of the outcome, be mindful of further false breakdowns/breakouts because the next true direction may not happen until after the FOMC decision or this year ends.
SPX levels of significance:
With the very possible scenario of continued frustration in the overall market until the FOMC decision, the better way to generate alpha for short term traders is through individual stocks or sectors. If you have struggled to find those or find yourself underperforming consider joining us at SassyOptions for daily analysis, set-ups and real time trade alerts.
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