The long term trend is still up. My blind neighbor told me so.
The market has been a little weak lately, but that is not news. August and September are historically the weakest months of the year (surprise it is not October! In fact October shows historically positive returns on average). Regardless of the financial media justifying any weakness with current news, the truth is, there is always something happening somewhere in the world that can be used to justify any market move, both positive and negative. Here's my rant on the Media and Markets' noise from December 2011.
Ignore the noise. Go on a MarketWatch diet for a week and your trading muscles will get leaner. Here's the SPX index.
(Click on image to enlarge)
McClellan: -138 (neutral)
21% of stocks are trading above their 20 Day Moving Average (oversold)
We were in a short term oversold extreme on Thursday. It was a good opportunity to sell out of the money Puts. That oversold extreme was relieved on Friday and although we're not at an extreme now, we're still very close to it. That's why I see the downside limited (SPX 1950 this week at the most). On the other hand, there's plenty of upside room and I think selling Calls is dangerous right now. Selling Puts, however, is still attractive. You can go down to the RUT 980 Puts in November or the SPX 1780 Puts for 90% probability of success plays. Very far, pretty safe moves.
RUT 1020/1030/1230/1240 Iron Condor: 93% probability of success with 20 days to expiration. RUT priced at 1119.33. This will be a winner.
RUT 970/980 Credit Put Spread: The trade entered 5 days ago. 95% probability of success, 8 weeks to expiration. Not much to say here.
I have no SPX positions at all, which is not usual. Those two Russell positions is what I have now, and here's how they look in the big picture. Yellow lines is where I don't want the index to go. I think they are pretty safe considering the downside is limited (in my opinion) and that the 1080-1090 zone should offer some decent support if we even get there.
(Click on image to enlarge)
Action plan for the week
Current positions look safe. No concerns there.
As for new positions, I would love to sell November Calls to balance my risks on both sides of the market. I'm just not willing to do it now. I need a little rally. If we see SPX 2015 or RUT 1180, that would catch my interest. Unfortunately those levels seem far for just one week, but anything can happen. If we get there, selling SPX 2090/2100 Calls or RUT 1250/1260 using November options would be my play.
Now, if instead we fall, we'll go back to short term oversold extreme. I would sell SPX October Puts. Maybe down in the 1830 area. I'm not a great fan of having 3 Put spreads at the same time in correlated indexes, because of my position size per play. But this is perhaps a risk I would be willing to take considering October expiration is close, which gives the market a smaller window of time to hurt me. Also the SPX 1830 level, when beta-weighted vs RUT, represents approximately 1010 RUT points, which is 2% below the RUT Puts I already have as part of the October Iron Condor. That represents a little diversification of risk over the price spectrum. I wouldn't do it if SPX 1830 was equivalent to RUT 1030 or something like that, as I could be in double trouble at the same time in the event of a strong correction. A big No-No for me.
The LT Trend Sniper System is killing it. And I can't but feel proud of that little and simple invention. Too bad I am just paper trading it and missed that beautiful downtrend in the EURUSD that has been materializing for two months.
Last week I said "The position will be closed only if EURUSD closes above 1.2958 any day this upcoming week". That price was never seen and consequently the sniper is still riding this trend. 71 days today. The kind of patient most Forex traders simply don't have. EURUSD closed the week at 1.26817. That is a 842.3 pip gain since the 1.3524 open on July 17. The stop loss had originally been placed 83.2 pips away risking 3% of the portfolio. That means the reward so far is 10 times the original risk specified for the trade. So, a portfolio growth of 30% by just following this monster down trend. To be fair, I don't expect the system to catch a trend like this one every year. This one has been truly exceptional and the Sniper is just a trend follower. If the market doesn't give him a trend, the system will simply suffer. The idea is that catching one or two decent trends per year would more than compensate for the losses incurred in the fake outs.
The system will exit the position this week if EURUSD closes above 1.28457 on any given day.
There has never been any secrecy with the rules of the system and everybody can trade it manually.
Get ready for an exciting week in the markets:
Monday: US Pending Home Sales. Chinese Manufacturing PMI.
Tuesday: European CPI, German Unemployment, Europe Unemployment numbers. US Chicago PMI, Consumer Confidence. China Manufacturing PMI
Wednesday: ADP Nonfarm Employment Change, ISM Manufacturing PMI , ISM Manufacturing Employment
Friday: NonFarm Payrolls, Trade Balance, Unemployment Rate, ISM Non-Manufacturing PMI.
Good luck this week folks!
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