Still in a Trading Range, But Maybe Not Much Longer
15th August 2008
The Iron Condor we suggested in late July expired worthless, so if you put that one on, you were able to keep all of the premium. The problem with that trade though, was the fact that the DJX was actually above 118 this week on an intraday basis, but never closed above that resistance level. While holding on would have produced a profitable trade, it is possible that you could have been stopped out at the break even level depending on the amount of risk you decided to take.
The 20% fall in the price of oil in the last month has certainly helped the stock market, but the DJIA is still showing signs that it is in a trading range, as it has had trouble trying to break out above resistance at 11,800. The SP 500 has looked a little better, closing the week above its 50 day MA. The Nasdaq, on the other hand has been strong in the last month, picking up 10 % since the July lows. It is now above both its 50 day MA and 200 day MA. Thats a sign that institutional investors are moving into Technology stocks.
The financial markets appear to be a little overbought at this time, but if oil continues to fall, they could continue that way for a while. On the other hand, it would not take much in the way of news to push the stock market back down again. This week could go a long way toward letting us know if it is time to start buying. Bullish Option Strategies like the Bull Call Spread or the Bull Put Spread will let you participate if a market rally comes to fruition, without you having to risk a large amount of capital.
JD