18th July 2010
It is bad enough that the 50 day MA for the SP 500 is already below its 200 day MA, but Friday’s rejection of the 50 day MA on heavy volume completed a lower high an confirms the continuation of this markets downtrend from its peak in mid April. The DJIA was showing a bid more strength over the last couple of months, but that is not looking any better now. The 50 day MA on the Nasdaq is about to cross its 200 day MA to the downside to complete a triple confirmation of a downtrend.
There are a couple of ways you could play this market depending on how aggressive you want to be. For the conservative, the Bear Call Spread above the market would be a good approach. For example, you could sell the August SPY 110 Call and buy the SPY 112 Call. If you are more aggressive, you can go with the Bear Put Spread below the market. In this trade, you could buy the August DIA 100 Put and sell the DIA 98 Put.
JD
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28th June 2010
Take your pick, the DJIA, SP 500, and Nasdaq all tried to break through the resistance of their 50 day MA last week. They all failed miserably. In addition to that, the Bulls were unable to rustle up any support at the 200 day MA. A good deal of the news we are heading of late is pointing towards a double dip. With the 50 day MA poised to fall below the 200 day MA, institutional investors could be ready to bail out once again.
While technically the stock market looks very weak, it is at times like this that all of us get fooled, so be cautious no matter which direction you think the market is going. If the Bulls can hold the SP 500 above 1,050 and keep the 50 day MA above the 200 day MA this could be a good buying opportunity following a 12% correction. A failure of that could see a fall to the 950 level of a year ago.
JD
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7th June 2010
The SP 500 joined the DJIA in setting a new, lower low for 2010 by falling to 1050 on Monday. The DJIA set a new low for the year on Friday, and dropped even further today. While the Nasdaq has not made a new low for the year, yet, it did come crashing through its 200 day MA to join its brethren below this important resistance level. Look for the SP 500 to reach 1025 before it attempts to bounce back towards the strengthening resistance of its 200 day MA. This is beginning to look like a double dip than a correction. If that’s the case, bearish strategies will prevail before this market shows signs of life once again.
JD
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31st May 2010
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
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22nd May 2010
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
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8th May 2010
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
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2nd May 2010
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
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11th April 2010
It is almost like the stock market read my post from last week as stock indexes are sitting right at the resistance levels I wrote about. To reiterate, those levels are 11,000 for the DJIA, 1200 for the SP 500, and 200 for the MNX. There will be a lot of news this week that can move the market off of these levels including 1st Quarter earnings, options expiration, and financial issues around the world. I am not going to predict which way the market is going to go, but I will be watching closely to see if caution prevails or if bulls continue their assault on the rebound from the financial crisis.
JD
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4th April 2010
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
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14th March 2010
What a difference a week makes. The 50 day MA proved to be more like the ceiling between the 1st and second floor of your house than the ceiling holding up the insulation in your attic. On its second attempt the SP 500 plowed right through it almost like there was nothing there. This time it stopped right at the level of the January highs. We will soon see if this level provides more resistance, or if turns out to be made of paper like the last one.
From a technical point of view, we have now completed the handle portion of the “Cup with Handle” formation. A breakout to the upside could prove to be a good buying opportunity, while a failure should take stocks back down to the 50 day MA once again. We should know a lot more about this market on Monday.
JD
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