Charts

The S&P hit 875 on Friday...where every possible resistance level was converging at. So as expected, we had a nice sell-off today. Market sentiment is still naturally split - it will take more than one down day to change anyone's mind. Almost everyone with a brain believes that this bear market is far from over; however, there is plenty of disagreement as to whether we see 700 or 1000 first, before heading lower. One thing that people can agree on, is that the market ran too far too fast in the last 30 trading days. At the moment, and given what is happening with earnings/guidance, I expect a more serious pullback. Now enjoy some charts.

SPY


QQQQ


VIX


SHORTS
TIE


OIH


WYNN


MMM


X


XOM


LONGS
TXN


USD



UUP

CHARTS you need to know

Today we broke out - as seen on SPY and QQQQ below (click chart to expand).
SPY


QQQQ


This market is wildly overbought, not to sound like a broken record. The market has made it quite clear though that it is in bull mode for the moment and not even 8.5% unemployment can stop it.

The market should not be able to run above 87/88 before a much, much needed pullback, perhaps that will be brought on by earnings season (even though expectations are in the loo). I think the green line is the next likely price target before retracing to 81 or even 77.


Notice in the next two graphs how the 2000-2003 bear market interacted with its 50 & 200 day MAs. Compare that to now. In 2000 the 50/200 MA crossover would have pretty much kept you out of the woods. And notice how many times price climbed all the way to its 200 day MA only to be rejected. In this bear market, we haven't even seen the light from the 200 day MA. More or less the light from any 50/200 MA crossover.
2000-2003 Bear Market

Current Bear Market


This doesn't mean we don't run up to SPX 1070 before seeing new lows. The timing of this, as always, is the hard part. I still have to think that if you are getting long now, the market cannot reward you - you missed the move - you are dumb money. Regardless, upon continued strength, here are a couple of examples of breakout stocks worth looking at, that have low risk entries:
MA

USD


With regards to GS. It did in fact close above its 200 day MA but as long as it is overbought and within its channel, I feel okay holding onto my puts. Plus, I bought OTM puts = small delta, so I'm not risking too much, to let out a little line on this one. The lack of strength in XLF gives me further confidence of a pullback. This will be a day-to-day decision.
GS


XLF


Final thing to watch:
VIX

VOLUME BY PRICE

The blue bars on the left (click on the SPY chart) represent the Volume By Price - which represents supply/demand - which represents support/resistance. Notice how perfectly the blue bar, 2nd from bottom, correlates to the most recent KEY LEVEL of resistance at 81.
SPY


Below are three good range bound stocks that can either be shorted on continued weakness or bought on strength.
USD


MA


AAPL

Charts

SPY


FXP/FXI





JPM/GS





USD

Bullish on USD?

If you believe the recent run in US Dollars is sustainable and don't feel like you've completely missed the move, consider the following strategy to profit from it: sell credit spreads... in gold.

Dollars move inverse to gold. And while there's certainly no perfect correlation there, the basic relationship is fundamentally sound. The next two graphs illustrate this:

US Dollars (DXY)

GOLD (GLD)

There has clearly been a breakdown in the gold rush. The question is whether it'll stay broke.

I think a low risk way to profit from this is to sell the 85/89 Sep GLD Call Spread (aka Bear Call Spread) for a $600 credit - with a stop above 85.65. Here's what the trade calc looks like:


Theoretically you're risking $3,400 to make $600 but in actuality, your intelligent STOP would limit your risk to a fraction of that.

So why not just sell Bull Put Spreads (credit spread: bullish) or buy Bull Call Spreads (debit spread: bullish) on DXY? For one, options don't trade on DXY. Also, the GLD charts looks a lot nicer in terms of support/resistance.


Have a great Labor Day weekend.

OptionSpot