Last week here I was neutral short term, but expecting pullbacks to be bought. Here is what I wrote:
Main view for next week: I’m neutral as to whether we move higher, consolidate sideways or pull back. You may not find that helpful, but I’m not going to lie and tell you I have a strong viewpoint about where it is going. However, until I see internal or external distribution, buy the dip (likely small ones) is the game plan. Furthermore, as long as the market remains strong, I will be taking advantage of big moves in strong stocks (AMZN, GOOGL, NFLX etc).
Thursday showed that distribution and not only got me to start shorting, but has begun shifting my longer term bullish outlook.
The market ended Friday right at support. Furthermore, price is only down 4.4% after a 13% straight up rally. Those are things I am keeping in the back of my mind. Having said that, I went out short with puts and believe we have more downside to come. Whether or not seasonality kicks in at the end of November and then again in December to save Christmas, I do think last week was a big yellow flag to this bull market.
Was October a bear market rally? That is still up in the air for discussion, but taken the evidence we have thus far, it seems it likely was.
The major thrust off the September bottom was met with strong internals initially, but petered out just as quick. As you can see on the weekly chart below, stocks above their 50-day moving average getting and staying over 80% have led to powerful returns for months. We barely reached 80% during the last rally. Staying overbought is a sign of upside momentum, just as staying oversold in late August/September was a sign of weakness. 
SPX 20-day highs minus 20-day lows was barely positive and really began trending lower on November 3rd, when SPX made a new high off the bottom. 
Last week I mentioned the 20-day highs contracting as something to keep an eye on. Below shows a lack of new 20-day highs with price. Furthermore, in a bullish trend with momentum, oversold levels lead to a quick and powerful bounce. Last week price reached its first oversold reading since the September bottom and then continued to become further oversold as of Friday’s close. 
Last week I also mentioned that the rising 20-day lows warranted caution and should be monitored. Below you can see it has only become worse. 
The takeaway: It is too early to know if this is the start of a bear market; however, there are warnings that should heed caution. It’s possible that we go down a bit further and then begin another bullish leg as we did in 2011, but until we see evidence of that, it would be prudent to consider any further rallies bear market rallies that should be sold.
SPY open interest: Taken at face value there is very little call resistance; but there is put support at 200, 198, and 195. This would make sense as they align well with key technical support. As opposed to using SPY levels, below I outline a few areas of support and resistance on SPX. At any of these levels, take a look at what internals look like (advance/decline, up/down volume, cumulative TICK, how momentum stocks are trading, etc.) and decide if it’s an area that will likely be broken or end the very short term trend (whether it’s down to support or up at resistance on a bounce). Although next week is monthly open interest and tends to change less throughout the week then the weekly open interest, if the downtrend continues in a heavy manner (as it did during the August OPEX) then expect it to change and expect the puts to get crushed.
It seems we will likely gap down Monday, but here are areas of support and resistance according to Friday’s close.
Areas of support: 2016, 2007, 1998, 1987, 1969 and 1950. The last three are major areas that could result in a sizable bounce.
Areas of resistance: 2022 (if we gap down), 2037, 2055, 2064. Any rally (even if not next week) to the latter two are heavy areas of resistance that could result in a great swing short.
Last week, Friday was the first week since September that the leaders were really hit hard. As I’m sure you are aware there is a lot of froth and potential future profit taking from those leaders (including my favorite one, AMZN). If this truly is the start of a much bigger downtrend, take advantage and short the rips (especially with puts) cause as they say, stocks take the stairs up and the elevator down.
At SassyOptions we were very long during the recent rally. Now that the trend has changed our main focus will be to short rips, as we started to do late last week. If you are looking for intra-day commentary and analysis on the overall short term market direction as well real time trade alerts (entries and exits) on ETF’s and momentum stocks come join us here.
Here is one very kind email I got from a member last week:
Thanks for your input. I have wasted a lot of $$$ on services in recent years, but in all honesty you’re one of the only real traders out there. So many are more concerned with subscriber growth and not taking care of the clients they already have, bragging about wins, yet disappearing when the market turns against them. I think I speak for many when I say that you are always here for us. I just wish I had found you sooner. Cheers!
The Times They Are a-Changin’
Last week here I was neutral short term, but expecting pullbacks to be bought. Here is what I wrote:
Main view for next week: I’m neutral as to whether we move higher, consolidate sideways or pull back. You may not find that helpful, but I’m not going to lie and tell you I have a strong viewpoint about where it is going. However, until I see internal or external distribution, buy the dip (likely small ones) is the game plan. Furthermore, as long as the market remains strong, I will be taking advantage of big moves in strong stocks (AMZN, GOOGL, NFLX etc).
Thursday showed that distribution and not only got me to start shorting, but has begun shifting my longer term bullish outlook.
The market ended Friday right at support. Furthermore, price is only down 4.4% after a 13% straight up rally. Those are things I am keeping in the back of my mind. Having said that, I went out short with puts and believe we have more downside to come. Whether or not seasonality kicks in at the end of November and then again in December to save Christmas, I do think last week was a big yellow flag to this bull market.
Was October a bear market rally? That is still up in the air for discussion, but taken the evidence we have thus far, it seems it likely was.
The major thrust off the September bottom was met with strong internals initially, but petered out just as quick. As you can see on the weekly chart below, stocks above their 50-day moving average getting and staying over 80% have led to powerful returns for months. We barely reached 80% during the last rally. Staying overbought is a sign of upside momentum, just as staying oversold in late August/September was a sign of weakness.
SPX 20-day highs minus 20-day lows was barely positive and really began trending lower on November 3rd, when SPX made a new high off the bottom.
Last week I mentioned the 20-day highs contracting as something to keep an eye on. Below shows a lack of new 20-day highs with price. Furthermore, in a bullish trend with momentum, oversold levels lead to a quick and powerful bounce. Last week price reached its first oversold reading since the September bottom and then continued to become further oversold as of Friday’s close.
Last week I also mentioned that the rising 20-day lows warranted caution and should be monitored. Below you can see it has only become worse.
The takeaway: It is too early to know if this is the start of a bear market; however, there are warnings that should heed caution. It’s possible that we go down a bit further and then begin another bullish leg as we did in 2011, but until we see evidence of that, it would be prudent to consider any further rallies bear market rallies that should be sold.
SPY open interest: Taken at face value there is very little call resistance; but there is put support at 200, 198, and 195. This would make sense as they align well with key technical support. As opposed to using SPY levels, below I outline a few areas of support and resistance on SPX. At any of these levels, take a look at what internals look like (advance/decline, up/down volume, cumulative TICK, how momentum stocks are trading, etc.) and decide if it’s an area that will likely be broken or end the very short term trend (whether it’s down to support or up at resistance on a bounce). Although next week is monthly open interest and tends to change less throughout the week then the weekly open interest, if the downtrend continues in a heavy manner (as it did during the August OPEX) then expect it to change and expect the puts to get crushed.
It seems we will likely gap down Monday, but here are areas of support and resistance according to Friday’s close.
Areas of support: 2016, 2007, 1998, 1987, 1969 and 1950. The last three are major areas that could result in a sizable bounce.
Areas of resistance: 2022 (if we gap down), 2037, 2055, 2064. Any rally (even if not next week) to the latter two are heavy areas of resistance that could result in a great swing short.
Last week, Friday was the first week since September that the leaders were really hit hard. As I’m sure you are aware there is a lot of froth and potential future profit taking from those leaders (including my favorite one, AMZN). If this truly is the start of a much bigger downtrend, take advantage and short the rips (especially with puts) cause as they say, stocks take the stairs up and the elevator down.
At SassyOptions we were very long during the recent rally. Now that the trend has changed our main focus will be to short rips, as we started to do late last week. If you are looking for intra-day commentary and analysis on the overall short term market direction as well real time trade alerts (entries and exits) on ETF’s and momentum stocks come join us here.
Here is one very kind email I got from a member last week:
Thanks for your input. I have wasted a lot of $$$ on services in recent years, but in all honesty you’re one of the only real traders out there. So many are more concerned with subscriber growth and not taking care of the clients they already have, bragging about wins, yet disappearing when the market turns against them. I think I speak for many when I say that you are always here for us. I just wish I had found you sooner. Cheers!
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