I think most investors had expected some weakness in the market direction today. A lot of analysts have been on the media discussing how today’s flat market shows that investors have lost their enthusiasm for yesterday’s Fed announcement on delaying the scaling back of Quantitative Easing. I disagree. The market direction up is very overbought and has been stretched beyond what the market can hold at the present. It needs to consolidate. Sometimes consolidating takes just a day and other times a few days. Analysts are always looking for reasons for the market direction to plummet. Forget that. Right now as long as the market direction holds above 1780 on the S&P 500 the move will be higher.
Market Direction and Support / Resistance
There is no need to go back more than 3 months now with the recent rise in the S&P 500. We are sitting in virgin territory on the S&P so I would think there would be some testing to be done. There are just two levels to be watching on the S&P 500 right now. 1700 was resistance and the break through on Tuesday and then Wednesday sets the market direction up for a re-test of 1700 sometime over the next few trading days, or so I would think.
If 1700 fails to hold then 1680 is the line to watch. Investors are a moody bunch and if the market direction retests 1700 and breaks below it, that would bring some additional selling which could push the S&P back to 1680. That is my line in the sand so to speak. If there is any retesting of 1680 it should be a cause for concern. Any break of 1680 and I will be moving back to Spy Put Options again.
VIX Index Call Options
I am being swamped by emails from investors wondering if I am back buying VIX Index call options. I picked up a handful today and holding December call options. I will write a more detailed article this evening for the members site as it is a strategy that is on the members site. In the last run-up of the VIX Index I was out too early and did not make the best returns. Some investors did 40% and a lot apparently made 30% to 35% returns. I was down at around 25%. No matter what you made though remember a profit is a profit and taking profits is never a mistake.
No Fixed Date or Magic Number
Bernanke yesterday commented that there is no fixed date or “magic number” for the commencement of tapering or even an end to its Quantitative Easing program. He express concern about unemployment and mentioned that they could still taper by the end of the year. While investors lauded the announcement of the continuation of the Quantitative Easing programs, other investors are worried that Bernanke’s comments are painting a somewhat bleaker image of the US economy than originally thought. The Feds meet again in October and then once more in December before the end of the year.
For those investors who sell options and trade within them such as the VIX Index calls, this is actually good news as it will keep volatility alive within the market and should create whipsaws to keep bringing in more profits.
Put Selling in this kind of environment is perfect as the volatility whips stocks around and makes for juicy put premiums. The Utility stocks for example were the dogs of the market just a few days ago and I sold a number of puts on utility stocks like Fortis Stock (FTS) in Canada. That stock is now up over $31 and making my puts fall in value. I’ll be closing them shortly.
Weekly Initial Unemployment Insurance Claims
A variety of economic news was released today all of which points to continued growth in the US. Leadings indicators were up 0.7 % in August building on July’s 0.5% gain. The Weekly Initial Unemployment Insurance Claims came in at 309,000 up slightly from last weeks adjusted 294,000 which is still showing the lowest levels in almost 6 years. As an indicator of stock market activity the Weekly Initial Unemployment Insurance Claims points to no major correction ahead for stock. You can read about how this market timing system works through this link.
Home sales rose to their highest level since Feb 2007 in August as many buyers rushed to avoid possible higher interest rates. Sales of previously owned homes rose 1.7 % in August another good sign.
Canada Unemployment News
For my fellow Canadians regular employment benefits fell 2.1% in July which apparently now brings the number of people seeking unemployment assistance back to levels since just before the recession got nasty in 2008.
JP Morgan Stock – JPM
JP Morgan is paying a $920 million penalty for a trading loss last year. They will apparently be admitting wrongdoing over the $6 billion trading loss as regulators claim the bank failed to properly supervise traders in its London operation. They indicated that traders inflated actual values and covered up losses and two of the traders are facing criminal charges connected with falsifying records.
Whereas I tend to trade only in Canadian Bank Stocks, I like JPM Stock and I believe there is a lot of value in Put Selling this bank. Over the past 6 months you can see in the chart below, that JPM stock has been easily traded through Put Selling. Since May the $50 put strike has provided reasonable returns with very little risk of assignment of stock.
Today I sold the Oct 19 options expiry $50 put strike for .55 cents. I did just 5 contracts as I want to see if the stock pulls back further from here.
Market Direction Outlook Intraday for Sept 19 2013
When a market direction up consolidates many analysts immediately jump in and call the end to a rally. That in my opinion is far from the case with this market. As investors you have to remember that media outlets have to fill their airtime and websites with content and the content that really gets people’s attention is the negative ones. Therefore any move higher is always suspect for the media and any sideways action results in a call out to bears to make appearances and wild comments. Ignore the noise and stay focused on stocks, their patterns and trading oopportunities because they always exist in every market.
For today I am not expecting much. The market direction I believe will see sideways with a bias down until the close and then I won’t be surprised to see investors buy the close and end the market direction flat or slightly up. Whatever happens, at this point I remain unconcerned until the market decides whether it will retest support. That will be the time to start watching market direction more closely.
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