Short setups

The bulls had a nice day today but I'm not feeling too optimistic...not after last week's breakdown. It seems like oil will continue to dictate market sentiment and direction. Be aware of the following economic stats this week:

Date	Time (ET)	Statistic
27-May	10:00 AM	Consumer Confidence
27-May	10:00 AM	New Home Sales
28-May	8:30 AM	Durable Orders
28-May	10:30 AM	Crude Inventories
29-May	8:30 AM	Chain Deflator-Prel.
29-May	8:30 AM	GDP-Prel.
29-May	8:30 AM	Initial Claims
29-May	10:30 AM	Crude Inventories
30-May	8:30 AM	Personal Income
30-May	8:30 AM	Personal Spending
30-May	8:30 AM	PCE Core Inflation
30-May	9:45 AM	Chicago PMI
30-May	10:00 AM	Mich Sentiment-Rev.

Pure speculation: In the very short-term I think it's reasonable for oil to pullback a little further and for SPY to climb back to 140 (or even low 140s). If any of this transpires I will be looking to buy Puts or Bear Put Spreads (aka: debit spreads) because I think more weakness is ahead and any pullback in oil will be temporary. I will also look at selling OTM Call Credit Spreads above significant levels of overhead resistance. Of course the market (SPY) could go straight to 132 without any more bounce so be cautious. Here are a few setups to note (click on company name or symbol to launch graph):

UnitedHealth Group (UNH) - bearish - may be on its way back down.

Apple (AAPL) - bullish - like AAPL to the upside. Use yesterday's low or the trendline as a tight stop.

Transocean (RIG) - bullish - use a very tight stop (see trendline) as the drillers have been getting punished.

Capital One (COF) - bearish - anxiously awaiting this lower trendline to be breached. Also, the fundamentals (i.e. tons of bad debt on the books) support a lower price.

SPY

The S&P finally broke out above an important technical level and closed above it's 200 day MA. SPY closed at 142.55. While this sounds bullish - remember tomorrow is expiration day and most of the market has become wildly overbought. SPY has a 2 day RSI of almost 97 and so does much of my watchlist. Some key levels, going forward, for the SPY at least, are 144/145 to the upside and 138 to the downside. I recommend getting out at either of these levels should we get there. Further, if we do get as high as 144/145 I recommend selling some OTM credit spreads or ratio spreads on SPY (or similar behaving ETFs) as I think some pullback is imminent. I don't recommend buying Puts, since overbought doesn't mean the stock's going down, it usually represents exhaustion and/or overextension which equates to either a pullback or simply sideways movement until overbought conditions are worked off. This is why a ratio spread can be a good idea. If done right (usually means you have to go a few months out) you will profit on a move up, down, or sideways and only lose from a huge move up. They are similar to selling OTM credit spreads except you have a greater range to make a profit but it does carry more risk should the stock continue past your long leg.

Here is a short list of stocks with their 2 day RSI above 99: MDY, DRYS, IJH, VMC, NAVS, VRSN, DOV, CRS. I believe statistically it's more profitable to go long on oversold stocks (i.e. 2 day RSI less than 05) than it is to go short on those with 2 day RSI above 95. Overbought stocks seems to have more staying power. Either way, some of these, you will find, are otherwise nice looking charts and they should stay on your watchlist - there is a reason why some of these are overbought...

SPY - spreads

Suppose you think that SPY is finally ready to break through resistance at 140. Here are a few ways to play it.

First, I'm going to set a realistic price target and then build strategies around it. In this example, I think SPY could realistically get to 144 by June's expiration.


Credit Spread












Debit Spread












Ratio Spread