The market direction outlook for today has been choppy but the uptrend is still intact. After the Fed yesterday juiced the market into new all-time highs again, investors are taking some profits and repositioning their portfolios and trades. The choppiness is to be expected but the underlying trend is unchanged. The Fed’s comments on interest rates are supportive of higher valuations and even with the choppiness the VIX Index is virtually unchanged.
Catalysts To The Downside Needed
I have mentioned this several times before. For the market direction to enter a strong pull-back, there needs to be catalysts that push it lower. Yesterday it could have been comments on interest rates that were not supportive of stocks and higher prices. That did not happen. At present then we are back to Iraq, and the Ukraine. Those have not changed but unless something much larger happens, there remains no real catalysts to drive stocks deeply lower. Even the overbought condition in the present market is being worked out and reduced. The only issue facing the market direction higher is a lack of support levels with strong support.
S&P Market Direction – Intraday
The one minute intraday chart below shows the tight range the S&P has been in all day. The morning bounce higher was met with selling, but not heavy selling. By the afternoon shortly after the lunch hour the S&P hit an intraday low of 1952.26 which has resulted in a bounce back. I am expecting from here the S&P will move to close somewhere above 1956 or 1958.
Market Direction Porrtfolio
Intraday the market direction remains choppy but all the technical indicators are still intact pointing to higher prices. I have entered the market direction portfolio earlier today and might have been a bit too early but overall I have my stop-losses in place and am comfortable where I am in the portfolio. USA members can read the latest portfolio trades here.
Selling Spy Put Options
In a twitter conversation an investor has asked me about selling puts on the SPY since premiums are good and the trend is higher. While I see nothing wrong with the strategy, I prefer selling puts against the IWM or the RUT although neither are trades I do often. Instead I prefer the SPY PUT Options trades for pullbacks and the Trading For Pennies Strategy for daily trading against the market direction.
The spy put options around 2:30 for today are below. To determine whether the trade is worth considering, even in an uptrending market, simply look at the premiums being offered and the risk to your trade. With the trend intact perhaps selling the out of the money put options that are between $192 to $193.50 may seem practical. However I look at the return and then compare that to other trades that I am doing to see where is my capital better risked. With the Spy at an all time high this trade could be quite worthwhile. However I know from experience that I can defend naked calls or credit put spreads or covered calls against stocks or ETFs, but rescuing Spy put options that have been sold is more difficult. The time factor of rolling from one week to the next to try to roll lower and stay profitable is not as easy with the SPY Put options. Therefore I tend to stay away from selling these options. Perhaps the better trade would be credit put spreads although then there are more commissions and usually more contracts are sold to earn more income since the long put reduces the income being earned.
June 27 expiry Spy Put Options as of 2:30 – June 19 2014
The IWM ETF
I think the IWM ETF is a better choice for investors who wish to sell out of the money put options. While the returns for the same weekly strike may be comparable, the IWM ETF has better support levels than the S&P at present making these puts perhaps a safer trade although the risk is still high in this type of trade.
IWM ETF put options for June 27 expiry as of June 19 2:40 PM
IWM ETF Light Support Levels
The IWM has a larger number of light support levels than the S&P. At most times the IWM does have more support levels partly due to the 2000 stocks it represents which tends to balance or flatten out the daily movements more than the S&P. This creates points or strikes which an investor could consider selling IWM ETF Put options against. The S&P support points are fewer and farther between making this type of $1.00 increments more difficult to judge.
IWM ETF showing light support levels
Market Direction Outlook Into The Close
In the close stocks may end up slightly negative but today is simply a consolidation day and nothing more. The technical indicators still look strong enough to see a positive close squeak by for the S&P, NASDAQ and Dow.
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