After last week I haven’t read much except for bearish implications. I too have already discussed that in my posts, particularly the one titled An Intermittent Bottom Perhaps, but Swing Bottom in Question, posted on January 19th. I still do not think the bottom is in; however, I also don’t think there won’t be some shake-outs along the way.
Not yet oversold enough:
- Percentage of stocks trading at 20-day highs is oversold, but note often it takes several oversold readings before a capitulation low.
- Percentage of stocks trading at 20-day lows still has a way to go.
- Stocks trading above their 50-day MA making lower highs signaling a weak market, but still has room to go before considered a better risk/reward oversold reading.
- TRIN did reach oversold getting above 3.5 on Thursday; however in isolation it doesn’t serve as a secure bottom. The chart below not only displays the TRIN, but shows you the very drastic change in environment from the last two years of trading bottoms.
Is next week set-up to break the trading range or what?
I’m sure you have seen it before, but in case you haven’t, here is the wedge being watched on SPY.
A break to the downside would imply lower lows are imminent with the 200-day MA likely being the first target at 197.53. A break to the upside would imply a test of 206.30 and likely new highs. Anything in between is fair game right? That all sounds great, but the market rarely plays out that straight-forward and doubt it will play out that cleanly.
The Open Interest as another tool alongside the technicals:
Below is the SPY open interest. As you can see the highest puts stand at 200 then 195. This tells me that if SPY falls below 200 (or opens below it) and cannot recover (expect bounces to it) then the odds favor a touch of 197, followed by 195 (likely not in a straight line). However above 200 (again expect a touch to it) and it’s very likely the other side of the wedge get’s tested at 204 (also currently the best pin, which is subject to change during the weeks course). With the recent volatility I wouldn’t be surprised to see both 204 and 200 or lower being hit next week. The point is that the open interest is currently lining up nicely with the technical picture and both can be used to play the intra-day/week volatility by knowing support and resistance areas without having to predict how it will play out. This also works well with the open interest of high beta names. Finally, on a break of the range be weary of a false move that ends up resolving in the other direction. Flexibility has become much more important recently than it has been over the last couple of years. As a trader, ebrace it or stay in cash.
Good Luck next week. If you are looking for daily market commentary, trade ideas, open interest and option education/trading then consider a subscription.
Yo We Goin’ Lower Next Week or What?
After last week I haven’t read much except for bearish implications. I too have already discussed that in my posts, particularly the one titled An Intermittent Bottom Perhaps, but Swing Bottom in Question, posted on January 19th. I still do not think the bottom is in; however, I also don’t think there won’t be some shake-outs along the way.
Not yet oversold enough:
Is next week set-up to break the trading range or what?
I’m sure you have seen it before, but in case you haven’t, here is the wedge being watched on SPY.
A break to the downside would imply lower lows are imminent with the 200-day MA likely being the first target at 197.53. A break to the upside would imply a test of 206.30 and likely new highs. Anything in between is fair game right? That all sounds great, but the market rarely plays out that straight-forward and doubt it will play out that cleanly.
The Open Interest as another tool alongside the technicals:
Below is the SPY open interest. As you can see the highest puts stand at 200 then 195. This tells me that if SPY falls below 200 (or opens below it) and cannot recover (expect bounces to it) then the odds favor a touch of 197, followed by 195 (likely not in a straight line). However above 200 (again expect a touch to it) and it’s very likely the other side of the wedge get’s tested at 204 (also currently the best pin, which is subject to change during the weeks course). With the recent volatility I wouldn’t be surprised to see both 204 and 200 or lower being hit next week. The point is that the open interest is currently lining up nicely with the technical picture and both can be used to play the intra-day/week volatility by knowing support and resistance areas without having to predict how it will play out. This also works well with the open interest of high beta names. Finally, on a break of the range be weary of a false move that ends up resolving in the other direction. Flexibility has become much more important recently than it has been over the last couple of years. As a trader, ebrace it or stay in cash.
Good Luck next week. If you are looking for daily market commentary, trade ideas, open interest and option education/trading then consider a subscription.
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