Last week I was out of town and posted the SPY open interest on my twitter stating that it looked similar to the week prior and worth a read (which is here). The main take away was that any rally would likely be sold and a swift sell-off was a good probability. That indeed happened as Monday was sold only to once again test the bottom of the range seen below on this chart.
The key levels on the downside that I have been continually watching (and writing about in this blog) have been 207 and 205. We finally got that 207 test (206.76). That was enough to get the market short-term oversold; however, once again without a washout. Thus, I still believe the risk/reward favors that any near term rally (even if to new highs) will be sold.
Overbought/Oversold Levels:
SPX stocks at 20-day highs: As you can see we got oversold enough to where we have had short term bounces, yet recently on the way back up we never get much above 30% before we then sell off again.
SPX stocks at 20-day lows: It had a tiny jump to about 20% before we bounced higher. Once again no washout type of move. 
SPX stocks above their 50-day moving average: Continues to make lower highs on each bounce back up and hasn’t had a washout low since October. 
Open Interest and next weeks market thoughts: I typically give a bias based on all the evidence I am seeing. I hesitated to write a post this weekend just because of the few ungrateful readers that say it wasn’t helpful without a direction (although I still don’t understand why they continue to read my posts), but for the majority that are grateful I went for it. The truth is I’m very torn about next week. The market has been building steam by trading in a very tight range and is set for an explosive move. If that move is up then I think it is more bearish and won’t be long lived, but could still be exuberant. If we follow the 2015 path and head back down then we likely either get to the bottom of the range (roughly 207) or finally breach it and possibly get a washout low. Without knowing how this will resolve I will go over levels below that I believe will be helpful next week.
The SPY 210 level has been very relevant recently and I think can be used as a pivot. It also aligns well with the open interest as there is a culmination of calls and puts at 210. Above there and the bulls have control and heading to new highs is more probable. Below 210 and the market first, likely gap fills (which is not much further down then 210), but also increases the odds of heading back down to the bottom of the box shown in the chart above (roughly 207). If it can finally continue lower then 205 will be key and any breach of 205 would possibly set up for a touch of the 200-day at 203 and maybe a washout low. If that should happen it would also breach the high puts at the 205 strike, which leads me to believe that it would create a hammer tail low that would be buyable for a swing long. 
Few random things to consider:
- ETF and mutual fund outflows have been very heavy since the start of the year. If we can create a washout low, we can then get some mean reversion and a forceful current of flows back into the market. If instead we shoot higher I think it spells trouble ahead for the markets.
- The recent action in the market has been distributive as you can see by @ukarlewitz tweet below.
- Even with the recent weakness in the Russel and Nasdaq, the S&P continues to hold up. I don’t have a way to prove this, but I believe that it has a lot to do with interest rates moving higher and bonds selling of (which is typically good for financials). The financial sector has been bullish as of late and accounts for a large percentage of the S&P helping to keep it afloat. I wrote about my belief that bonds would sell off on April 4th here and although I believe bonds are due for a bounce, I remain in the camp that they have topped (or are very near that point) irrelevant of when the Fed does raise rates (BTW, I will be happy to admit if I am wrong, but I would like to take this moment to note I have not been calling for the top in bonds for three plus years as many others have).
Wrapping it up: If you are confused, as you can see from above I am in the same camp as you. I’m sure some out there know exactly what will happen (as they always seem to get it right), but I am happy to admit that I am very torn. If we get a rally higher, I think it can be a late stage exuberant rally and worth playing long for short term moves that can yield a good deal of profit. If on the other hand we can move back lower then we likely either test the range and get a short-lived bounce AGAIN or we finally get a capitulation type of washout.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
The Big Move Is…..
Last week I was out of town and posted the SPY open interest on my twitter stating that it looked similar to the week prior and worth a read (which is here). The main take away was that any rally would likely be sold and a swift sell-off was a good probability. That indeed happened as Monday was sold only to once again test the bottom of the range seen below on this chart.
The key levels on the downside that I have been continually watching (and writing about in this blog) have been 207 and 205. We finally got that 207 test (206.76). That was enough to get the market short-term oversold; however, once again without a washout. Thus, I still believe the risk/reward favors that any near term rally (even if to new highs) will be sold.
Overbought/Oversold Levels:
SPX stocks at 20-day highs: As you can see we got oversold enough to where we have had short term bounces, yet recently on the way back up we never get much above 30% before we then sell off again.
SPX stocks at 20-day lows: It had a tiny jump to about 20% before we bounced higher. Once again no washout type of move.
SPX stocks above their 50-day moving average: Continues to make lower highs on each bounce back up and hasn’t had a washout low since October.
Open Interest and next weeks market thoughts: I typically give a bias based on all the evidence I am seeing. I hesitated to write a post this weekend just because of the few ungrateful readers that say it wasn’t helpful without a direction (although I still don’t understand why they continue to read my posts), but for the majority that are grateful I went for it. The truth is I’m very torn about next week. The market has been building steam by trading in a very tight range and is set for an explosive move. If that move is up then I think it is more bearish and won’t be long lived, but could still be exuberant. If we follow the 2015 path and head back down then we likely either get to the bottom of the range (roughly 207) or finally breach it and possibly get a washout low. Without knowing how this will resolve I will go over levels below that I believe will be helpful next week.
The SPY 210 level has been very relevant recently and I think can be used as a pivot. It also aligns well with the open interest as there is a culmination of calls and puts at 210. Above there and the bulls have control and heading to new highs is more probable. Below 210 and the market first, likely gap fills (which is not much further down then 210), but also increases the odds of heading back down to the bottom of the box shown in the chart above (roughly 207). If it can finally continue lower then 205 will be key and any breach of 205 would possibly set up for a touch of the 200-day at 203 and maybe a washout low. If that should happen it would also breach the high puts at the 205 strike, which leads me to believe that it would create a hammer tail low that would be buyable for a swing long.
Few random things to consider:
Wrapping it up: If you are confused, as you can see from above I am in the same camp as you. I’m sure some out there know exactly what will happen (as they always seem to get it right), but I am happy to admit that I am very torn. If we get a rally higher, I think it can be a late stage exuberant rally and worth playing long for short term moves that can yield a good deal of profit. If on the other hand we can move back lower then we likely either test the range and get a short-lived bounce AGAIN or we finally get a capitulation type of washout.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
Share this: