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Sunday, December 11, 2011

Weekend thoughts

Hello folks,
Looks like seasonality tendencies are getting their way. Fundamental analysis, specially for daily forecasts is basically useless these days with a market too sensitive to any news. I mean, amidst Europe's issues and positive signs for the US economy, who the hell can figure out anything in this market? Now, throw some unexpected announcements from any random leader to the mix and I dare you to forecast something. Who the fuck knows where this market is headed on a daily basis? NOBODY.

Now, in spite of everything, it looks like the tendency for the market to go up in December will prevail. Reminds me of last year when it didn't matter what you threw at the market it just kept going up and up unstoppable till May.

The market got into overbought territory at some point this week. On Thursday it seemed like oscillators wanted to start a down cycle but on Friday it all went up again. Let's look at a chart of the SPX index.

(Click on image to enlarge)

Stochastics seems to be starting to point down, but MACD looks healthy to continue pushing up. The 200 Simple Moving Average has proven to be solid resistance. I believe that at this point of the year there won't be a huge sell off or anything like that. So, selling puts seems a good idea to me, but I just wouldn't sell them now. I'd personally wait for Stochastics to go down to the 20-30 area, close to or in oversold territory, to increase the odds that most of the bearish move is over by then.

Selling more calls in the other hand is also a valid idea, but I would wait for the markets to go up here and get deeper into overbought territory. I opened a Bear Call Spread on the QQQs this week and didn't want to sell more calls until the market went higher. Unfortunately that didn't happen. The position was open when the S&P 500 was around the 1265 area. If it keeps going up, say to 1280, 1290 I will try to sell farther out of the money calls on another instrument probably RUT. If the market doesn't substantially move down (by substantially I mean to at least down to 1220) or if it doesn't make it to the 1280 - 1290 area then so be it, I won't open any positions.

This week is expiration week and the two positions of the December expiration cycle look really comfortable. So, chances are very high that there will be a plus 6% return on the overall portfolio for the December 2011 expiration cycle.



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