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Saturday, January 12, 2013

Weekend Portfolio Analysis (01-12-2013)

Well, well, well, no trading for me this week, as the market barely did anything. The SPX index started the week at 1466.47 and closed at 1472.05 for a 0.38% gain. We are now trading right up against resistance on the SPX.

The RUT 890/895 February Bear Call Spread position looks like this:

(Click on image to enlarge)

Temporary loss of -$225 and probability of success at expiration 60.56%. This is only slightly worse than last weekend. Again I'd like to close it on a pull back and now I'm happy to close it for 1.20 debit. ($300 profit as I opened it for 1.80 credit x 5 spreads)

The SPX 1520/1525 Bear Call Spread on February is looking like this:

(Click on image to enlarge)
Temporary -$50 loss, same as last weekend. Probability of success at expiration 79.13%. I still believe this is a solid position to be in. I want to milk it until the very end of the expiration cycle.

Back to the January expiration cycle, I have the SPY 134/132 Bull put spread, which will expire this Friday for full profit. It was opened for 0.22 credit, which represents $242 on 11 spreads I traded.


Plan for the week

The January SPY 134/132 Bull Put spread won't be touched. I'll get full profit in 6 days and will save closing commissions.

The January SPX 1520/1525 Bear Call Spread won't be touched this week either. I believe the upside potential for this market is limited, and it shouldn't hit 1518 (my adjustment point this week).

The February RUT 890/895 Credit Call Spread will be closed when the market pulls back. I will take $300 of profit as soon as it is available (1.20 debit). If RUT keeps going up, I will adjust further up when RUT hits 888. I'll probably open the new position using the 900/905 strike prices for a credit greater than 1.80. Same plan as last week.

If we get to see a -2% move on the markets in general, I will try to sell Puts on SPX. Probably selling the 1380 Put or a lower strike. The first 5 point wide Put Credit spread yielding 0.70, that will be my candidate. So, same plan as last weekend here.


Market conditions right now

Last week I said the upside potential for the week was very limited as we were facing very overbought levels and trading at the upper end of the uptrend channel. In fact I said "it should be sideways or down from here" or at the most "slowly creeping higher". And I discounted  massive 2% rallies. Let's see how things are now:

(Click on image to enlarge)
 We are still inside the uptrend channel, close to its upper end.


Stochastics at 96, very overbought. (96 last week)
McClellan at 122 is not overbought. (173 last week)
80.59% of stocks are above their 20 SMA (87.97% last week)
83.62% of stocks are above their 50 SMA (84.46% last week)

As you can see, the market is now slightly less overbought than it was last week. Unbelievable. Even though it went further up this week. Via time and mostly sideways price action it has digested the gains and now there is a little room for more upside, as signaled by McClellan.

However, I still want to point out, we are close to very overbought levels anyways. This history is looking like last year, when the market kept going up from December to April. But,....history doesn't necessarily repeat itself. If we keep going higher it is going to be in a slow fashion. But every single day, every single day chances increase for a pull back of some sort.

The CBOE Index Put/Call ratio went from 0.77 down to 0.55 and that is a bullish extreme. We're getting the signals little by little. First investors believe the uptrend has to reverse, they short it, they get squeezed, a bunch of them try to short again. Finally they give up and jump on the bullish bandwagon after being hurt so many times trying to short the market. By the time every body joins the trend has little life left.

We'll see, I say it is slowly creeping higher, and a pull back should be close. Selling Out of the Money Calls at this point I believe is a good idea. (Well, except for the fact that premiums are small due to the low Implied volatility). But again, my point is, the upside is limited.



Possible high impact news this week:

There's going to be a lot of activity this week

Tuesday: 8:30am Retail Sales, PPI
Wednesday: 8:30am CPI
Thursday: Housing Starts, Building Permits, Philly Fed, Chinese GDP at 7pm Eastern time.


Good luck this week folks!



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