OptionsVest

The old adage to Sell in May and Go Away proved to be the right move this year as the SP 500 dropped 8% this past month.  In an effort to recover at the end of the month, the SP 500 bounced right back to the resistance of its 200 day MA on Thursday this week. Unfortunately it then headed back south for the holiday weekend on Friday. Next stop is most likely the February end of day lows just below 1060. It is there that we find out if this is just a correction, or if the market is making its first move in a double dip.

JD

When the stock market broke down through its 50 day MA back in February, that level did not provide much resistance on the way back up. This time, events unfolded just a little bit differently. On cue, the SP 500 bounced back from the “Flash Crash” right up to its 50 day MA and then came crashing down right through its 200 day MA.

The only consolation is that stocks did not fall through their February lows of 1060 for the SP 500, 9,900 for the DJIA, 173 for the MNX, and 42.50 for the QQQQ.  In contrast to the SP 500, the Nasdaq is currently being supported by its 200 day MA at 44.50 for the QQQQ.

We will be watching this week to see if the 200 day MA is as resistant as the 50 day was, or if it becomes support for another run up. Technically, the market looks weak, so I would not be surprised if the SP 500 leads the market down, rather than the Nasdaq leading stocks back up. That being said, the SP 500 could just as easily head north to test resistance at 1,100 before heading back down.

JD

Last week I wrote that I thought the stock market probably would not be going up significantly before the next options expiration. Turned out to be an understatement.  Thanks to financial troubles in Greece and an extreme reaction to what may have been a typo (but could have been done on purpose) not only did stocks blow through support at the 50 day MA, they made it all the way down to the 200 day MA and quickly bounced back up. We have now found a new level of support, but this time it is the 200 day MA. The 50 day MA is now likely to provide some resistance for this rebound.

If you put on a Bear Call Spread last week, you might as well book your profit. While this trade was too conservative to provide a windfall, it still goes in the win column.

JD

The stock market is in almost exactly the same place it was for my last post, DJIA 11,000, SP 500 1200, and MNX 200. The difference now is that we are sitting at support rather than resistance.  While that sounds positive, the market rally from the February lows is under pressure. Stocks were up 2% or so in April, but the three heaviest volume days since last we wrote have all been down days.

In recent months, I have suggested using bullish option strategies to take advantage of minor pull backs in the stock market.  Given the current environment, I’m more inclined to take a slightly bearish approach now. Bear Call Spreads just above current market levels that are executed for a credit to your account are a good way to profit if the market “Does Not Go Up”.

JD

The good news is that stocks continue to act like they have hit a ceiling, but the ceiling keeps getting a little higher. For now, those levels are 11,000 for the DJIA, 1200 for the SP 500, and 200 for the MNX. The bad news is that the down days are coming with more volume than the up days. There is no reason to be overly bullish or bearish at this time. Option traders continue to be best served with spread trades sell some premium to take advantage of time decay.

JD