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McClellan: +100 (neutral)
Stocks above their 20 Day Moving Average: 71% (overbought)
Ok, we're close to a short term overbought extreme. The starts are aligning and only the McClellan oscillator is signalling some breathing room left. Of course, as we have all seen in the past, the market can remain overbought indefinitely. 2100 seems to simply be a matter of time, but for this week in particular I see 2120 as the top.
These circumstances merit extra caution. I will not sell Credit Put spreads under these circumstances and only Credit Call spreads if an overbought extreme is reached.
SPX 1875/1880/2190/2195 Iron Condor
98% probability of success. Will expire worthless this week. Good trade. Easy to ride.
SPX 1845/1850/2170/2175 unbalanced Iron Condor
33 days to expiration and 77% probability of success. No concerns on the Put side. The Call side also looking safe so far.
Action plan for the week
The February Iron Condor will expire and yield max profit. The YTD return for the portfolio will go up to +4.16%. Not spectacular, but on pace to a 24%-25% annualized return with very little effort which is nice.
As for the March unbalanced Iron Condor, price is obviously closer to the Call side than the Put side. However, in order for the 2170 short Call to reach 30% probability of being in the money, the SPX would have to go to about 2140 this week. That would put the price of the index close to 5% above its 50 Day Moving Average which is a very rare event. In fact I don't think that has happened in the 5 years I have been blogging. So, I don't see myself adjusting that Call side this week.
As for new trades, well, the April expiration cycle will be 8 weeks away on Friday. I'm still not sure about what I will do because it depends on whether the market reaches an overbought extreme or not. For now, my candidate play would be the SPX April 1840/1845/2205/2210 Iron Condor. As usual, I want .80 credit or better. But if the market rallies and we reach an overbought extreme, I may go with a 2220/2225 Credit Call spread only.
If the overbought extreme is reached before Friday, I will enter a March RUT 1300/1310 Credit Call spread. I'm still attracted to that position, but I need 1.00 credit or better, otherwise I'll let it pass.
Short trading week with the American markets closed on Monday.
Wednesday: Building Permits, PPI, Housing Starts.
Thursday: German Manufacturing PMI & Services PMI. US Philly Fed Manufacturing Index.
Good luck this week!
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