According to Finviz the SPX index went up +1.4% this week. That was certainly more than I thought possible, and ladies and gents,........it's business as usual for this market. So, far it is starting to look as stubborn as 2013.
Market conditions (without TOS)
Stochastics: 76 - 78 (neutral)(last time I checked. Don't remember the exact number but it was below 80)
McClellan: +129 (neutral)(again my memory may be failing here but for sure it was below +150.
76.80% of stocks are trading above their 20 Day Moving Average (overbought)
We are not extremely overbought, there's room to keep going higher. I remember there was a bearish divergence in the charts: Stochastics and McClellan were going down as price has kept going up. So, there might be some hope for those who want to see this market take a break. The problem is, you never know when those signals are going to materialize. So, overall, a market that is close to an overbought extreme but it is not quite there yet. I believe there is room for a 1% push higher this week but no more than that. We'll see. This is not a good time for selling Puts.
RUT 940/950 Bull Put Spread Very comfortable and way out of the money. Nothing to do here. I could potentially sell a March 1240/1250 Bear Call spread this week in RUT, if I can get 0.70 - 0.80 credit. That would complete an Iron Condor here with very good possibilities in my opinion.
SPY 159/161 Bull Put Spread Also very comfortable and way out of the money.
SPY 191/193 Bear Call Spread This trade was entered on Monday. I looked like a genius at first but not so much now. It is not that bad yet, but it is the position I have to look carefully in the March exp. cycle for possible adjustments. Which I will talk about in the Action plan for the week section.
RUT 1020/1030/1245/1255 Iron Condor
Also a new position entered on Monday. Still young. The market went up this week, but the 1245 Call is still safe and I don't think I will need to take care of anything here this week. Still plenty of room and time
Action plan for the week
Ok, I could think of opening new trades, but when there is a position that could suffer (March SPY 191/193 Call Credit Spread) I need to take care and design a contingency plan for it above anything else. For example, this week I thought of opening an April SPX 1950/1955 Bear Call spread. Nice trade in my opinion and clearly above the projected uptrend channel, but I decided not to act. Why? Well, because I have an SPY 191/193 in March which may be threatened in the next few days. And If I need to roll it up and out to April, then I would end up having an April SPY and an April SPX Call Spread, both around the same prices. I hate that concentration of risk. Yes, you can make money trading like that, and even look smart showing off your 60% portfolio return come year end, but, what if? what if the market goes up unstoppably during March and April? Catching the Lazy Trader with 3 Bear Calls spreads (SPX, and SPY being almost the same, plus the existing Call side of the RUT Iron Condor)? So, nop, I didn't bite.
So, here's my plan.
Let's say the market keeps going up this week and SPY hits 189 ish or so. At that point my SPY 191/193 Spread will be close to hitting the 30% probability of finishing in the money by expiration (twice that value is the probability of touch, that'd be a 60% probability that at some point before March 21, SPY touches 191) If that happens, then I will close the spread for a loss. It should be worth around 0.50 credit at that point and because I opened it for 0.16, it would represent a loss of 0.34 credit or $374 in 11 contracts per leg. But I will counter attack with an SPY 193/195 Call Spread in the same March expiration cycle that will give me around 0.15 credit of $165 in 11 contracts per leg. That still doesn't cover my loss on the 191/193, it barely mitigates it. But in addition to that I would also sell a RUT 1240/1250 Credit Call Spread in March. To sum up, my final March positions would be:
SPY 159/161/193/195 Iron Condor
RUT 940/950/1240/1250 Iron Condor
Both with very decent probabilities of success where I would be recovering my SPY 191/193 loss and would position my self comfortably above any violent projected trend line.
Now, if we stay sideways I probably won't do anything.
Finally if we sell off, I might take off the SPY 191/193 spread as soon as I get a small profit that covers commissions. Just to remove the looming threat and have a positive March anyways.
Long Term Investing
Finally this week, I added 35 shares of Rogers Communications Inc. at $42.98 to my Dividend Income Portfolio. I now have 68 shares of Rogers at an average cost of $44.334. The position is projected to give me $125.12 dollars in the form of passive income (dividends) per year. I am still invested in 8 Canadian companies and 7 American ones. For details of my Dividend Income portfolio visit the Results page.
Sunday: Chinese HSBC Manufacturing PMI
Monday: US ISM Manufacturing PMI
Wednesday: US ADP Non-farm employment change and ISM Non-Manufacturing PMI
Friday: Unemployment Rate, Non Farm Payrolls, Chinese Trade Balance
Good luck this week folks!
Check out 2014 Track Record