The S&P500 started the week at 1978.96 and closed at 1967.90 for a 0.56% decline. According to the main financial media outlets, US markets were concerned about Ebola on Wednesday. The question is, was that concern suddenly dissipated on Thursday that the markets rebounded? I think Ebola was the most common subject on the headlines to justify the market decline early in the week. Yes, there were also protests in Hong Kong, some issues in the middle East etc. But I think Ebola was the main "thing". Anyways, how do they justify the reversal on Thursday and Friday after looking so dumb? Same old story: the media using headlines to explain daily market moves. I don't really know how you could win this game if you followed and believed the financial media. You are forced to become ironic and sarcastic over time, which could make you sound a bit arrogant at times as I may be sounding right now. But really, it's just survival. You HAVE TO ignore all the pundits selling fear. You HAVE TO. How about the market was due to go down simply because valuations were (are) a little over extended and investors are not so attracted? Also, isn't it funny that the market corrects and rebounds exactly around technically significant points and that those days there always happens to be a headline to explain things?....only after the fact?
Just look at the rebound. A thing of beauty, right at the lower boundary of the long term uptrend channel:
(Click on image to enlarge)
McClellan: -84 (neutral)
24% of stocks are trading above their 20 Day Moving Average (oversold)
Back to no man's land but with way more upside room than downside. To me, this is not the time for selling Calls. At this point I usually prefer to sit on my hands until a new extreme is reached.
RUT 1020/1030/1230/1240 Iron Condor: 97% probability of success with 13 days to expiration. RUT priced at 1104. This position should give me no problems this week unless something truly drastic happens in the world.
RUT 970/980 Credit Put Spread: 94% probability of success, 7 weeks to expiration. Won't be a problem in the near future.
SPX 1755/1760 Credit Put Spread: 98% probability of success, 7 weeks to expiration. I'm sleeping like a baby.
Action plan for the week
All three positions look pretty good to me and they shouldn't be a problem in the next few days. Obviously I'm not a big fan of having 3 Put spreads on, but fortunately one of them will go away in just 13 days. So, I'm not overly concerned this time. Also, November Put spreads are comfortably out of the money.
As for potential new trades, I want to balance my exposure by adding a Credit Call spread, but right now is not the right time. If I can get to sell November SPX 5 point wide Call spreads above the 2090 area for at least 0.50 credit or RUT 10 point wide Call spreads above the 1250 area for at least 1.00 credit I would do it without hesitation. However, those opportunities seem remote. SPX would need to rally about 50 points. Although possible, it is unlikely to happen in just one week as it is a greater than 2% move up.
If we go sideways this week, I'll do nothing.
If we go down, I won't do anything either. I don't want to add more Put side exposure. In this case I'll limit myself to defending existing Put spreads if they need to be adjusted.
The LT Trend Sniper System is still riding the short EURUSD position initiated on July 17 this year. Last week I said: "The system will exit the position this week if EURUSD closes above 1.28457 on any given day." It was never even close, EURUSD keeps consistently falling and the Sniper is just riding the trend indefinitely.
EURUSD closed the week at 1.2514. That is a 1010 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 12.1 times the original risk specified for the trade. That represents a portfolio growth of more than 36% by just following this monster down trend. This is remarkable. 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 1.2780 on Monday or if it closes above 1.2684 any other day of the week.
Lightest week ever in terms of economic numbers. I don't see anything significant.
Good luck this week folks!
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