Last week here I wrote that I wouldn’t be surprised if we went below SPY 200 and then went on to test the other side of the recent range at 204. Both did in fact take place before the market then went on to break the wedge that many market participants have had their eyes on. The path of least resistance after the failed breakdown Monday and a breakout Wednesday would appear to be higher; however, unlike the last two years of V-shape reversals the path likely will not be in one straight line.
What to look for next week?
As long as SPY can remain above the breakout zone the risk/reward is in favor of going back to old highs and possibly surpassing them. A backtest of the breakout area would be a great set-up to buy in anticipation of a move to new highs and SPY 210 (where the highest SPY calls are). Falling back within the breakout zone leaves the market more vulnerable to once again tag the bottom of the range. That also lines up almost perfectly with the 200-day moving average that it narrowly missed during the breakdown Monday morning. 
The open interest for SPY also signals that if the market can break over Friday’s high of 207.24, there is a clear path to new highs (minus the random tick made on Thursday 12/18) before facing call resistance at 210. If on the other hand SPY does fall back into it’s choppy range then 201 may become a magnet where there is high open interest puts.
Russel outside of his box:
If you follow me on TWTR you have probably seen me posting pictures of dogs either inside, partway inside, or outside of a box. Russel has become my pet for tracking the IWM and the range (or box) it has been trading in since the end of October of last year.
Since the end of last year I have outlined my expeditions for a good deal of upside from the small caps. In anticipation I have been holding April 120 IWM calls while continually selling weekly calls against them to lower my cost basis. A successful backtest of the top of the range (roughly 118.75) would give more credence to the recent breakout as the true path and the likelihood of new highs sooner rather than later. 
In summary, the path of least resistance next week is higher; however, being prepared for a backtest would be prudent. If the market were to follow the 2015 theme then a breakout over 207 early in the week (sucking in longs) only to then go back and test the breakout area around 203/204 would be par for the course and still be considered bullish. That is one scenario among a few that I have prepared myself for next week.
“You have to be fast on your feet and adaptive or else a strategy is useless” Charles de Gaulle
Good Luck next week. If you are looking for daily market commentary, trade ideas, open interest and option education/trading then consider a subscription.
Stay On Your Toes Or Be Stepped On
What to look for next week?
As long as SPY can remain above the breakout zone the risk/reward is in favor of going back to old highs and possibly surpassing them. A backtest of the breakout area would be a great set-up to buy in anticipation of a move to new highs and SPY 210 (where the highest SPY calls are). Falling back within the breakout zone leaves the market more vulnerable to once again tag the bottom of the range. That also lines up almost perfectly with the 200-day moving average that it narrowly missed during the breakdown Monday morning.
The open interest for SPY also signals that if the market can break over Friday’s high of 207.24, there is a clear path to new highs (minus the random tick made on Thursday 12/18) before facing call resistance at 210. If on the other hand SPY does fall back into it’s choppy range then 201 may become a magnet where there is high open interest puts.
Russel outside of his box:
If you follow me on TWTR you have probably seen me posting pictures of dogs either inside, partway inside, or outside of a box. Russel has become my pet for tracking the IWM and the range (or box) it has been trading in since the end of October of last year.
Since the end of last year I have outlined my expeditions for a good deal of upside from the small caps. In anticipation I have been holding April 120 IWM calls while continually selling weekly calls against them to lower my cost basis. A successful backtest of the top of the range (roughly 118.75) would give more credence to the recent breakout as the true path and the likelihood of new highs sooner rather than later.
In summary, the path of least resistance next week is higher; however, being prepared for a backtest would be prudent. If the market were to follow the 2015 theme then a breakout over 207 early in the week (sucking in longs) only to then go back and test the breakout area around 203/204 would be par for the course and still be considered bullish. That is one scenario among a few that I have prepared myself for next week.
“You have to be fast on your feet and adaptive or else a strategy is useless” Charles de Gaulle
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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