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SPX Stock Index Trading Positions Update For July

Stock-Markets / Stock Index Trading Jul 19, 2009 - 07:51 AM GMT

By: Angelo_Campione

Stock-Markets

Best Financial Markets Analysis ArticleOn June 23 we suggested a full position in a July 980/990 SPX Call Spread for a net credit of $0.50 and a half position in a July 770/760 SPX Put Spread for a net credit of $0.40. If you entered this, the premium you received was $70 per $1,000 of capital utilized, i.e. 7.0% before commissions for 4 weeks in the position.

The official CBOE settlement price for the July SPX options was 940.03.


Current Position:

Nil

Current Performance for 2009:

(Please note, this performance is raw, i.e. without brokerage/commissions taken into account)

General Commentary:

The system remains on a Neutral signal.

If someone had said this time last week that the market would rise 7% next week, you'd have thought they were crazy. We had various signs giving the impression that the market was about to break down, the head and shoulders top, the break (and close below) of support and a lower low.

So what happened?

The market simply loves to do the unexpected, unexpected in terms of what seems obvious on surface appearances. For the S&P, the head and shoulders pattern was being widely broadcast on CNBC and it seems the crowd was positioned for the worst. When the worst didn't happen and prices continued higher, short covering began (certainly spurred on by the positive earnings and guidance reports).

The thing is though, if you look a little below the surface of appearances you can usually find the truth. While it seemed logical to be positioned short before this move higher began, there were signs developing that the key support would hold (discussed last week). I don't think many would have suspected the speed and degree of the rise, although this is not out of the ordinary in short covering instances.

For the week ahead, the crowd is getting a little too bullish and I suspect that we're due for a consolidation, which could come in the form of a short sharp move lower (in the order of around a 4% drop on the S&P). If that happens, evidence is building that this will be a good point to go long. From this services' perspective, the current sideways market has been ideal, but the sideways pattern is probably close to ending soon so stay tuned on how we'll be positioning for the month ahead.

On to the analysis...

SPX Chart - Bigger Picture

The bigger picture is maintaining its range bound trading, even in the face of a 7% rise last week. Having said that, it's now at a point where a decision will be made on the next mid term move.

If we close above 950, the downtrend and horizontal resistance will be broken and the linear MACD will continue above zero, all clearly bullish. On the other hand, if we start to drift lower and the MACD crosses over, we're likely to see a significant mover lower. It'll probably still take a couple weeks before we know the definitive answer though.

SPX Chart - Shorter Picture

The shorter term has done a U turn to where we were last week and while the MACD has had a bullish cross over, prices seem to be extended and in need of a breather.

It's possible that we get to 950 early in the week ahead but I wouldn't be surprised if we begin a sharp turn lower. Ideally a drop to 905 to close the gap from Wednesday (50% retracement of the current move) and if prices can find support around the 900 - 910 region, it may be a great point to go long.

For the week ahead, support on the SPX is 900 - 925 and resistance is 950.

The VIX Picture

Given the strength in the markets last week, the VIX has not actually broken down by as much as one would have thought, in fact Wednesday gap up in the markets had the VIX finish higher on the day.

The MACD is still showing the potential of large divergence, which could be negative for the markets in the week ahead. Having said that, while the VIX remains below the 50 DMA, the bulls remain in control for the markets.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Quote of the Week:

The quote this week is from Mahatma Gandhi, "Freedom is not worth having if it does not include the freedom to make mistakes."

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

Important Disclosure
Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.
Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.
In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.
For a complete understanding of the risks associated with trading, see our Risk Disclosure.

© 2009 Copyright Angelo Campione - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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