Here's how it looks now.
In this context, the overnight spike in futures is expected and fits with a right shoulder being put in around 1685. Recall the gap is 1685.39. The current action was warned about in yesterday's post.
The news is that Putin offered a diplomatic solution to the Syrian issue (on the eve of Obama's speech) that is international in scope (Putin loves the UN) and may have derailed the invasion. It's a brilliant move.
The headline on Zero Hedge this morning said it best: CHECKMATE. The president should be embarrassed and, regrettably, looks like an amateur. Putin is a consummate judo master, skilled at putting his opponents off balance. This is not an original idea of mine; I heard it from someone on the news the other day. Turns out it was a very prescient description. Putin put Obama off-balance on the world stage.
Regardless of the politics at play here, the market telegraphed this. Oil started it yesterday. It could be said that gold hinted as well. Futures played along until the news hit and then went crazy. Europe is up huge. So is Asia. It's a wall of green.
Now is a time to keep an eye on the ball, however. Futures simply indicate that the S&P will likely get into the 1685 zone to possibly fill the gap. There is also a 78.6% Fib retracement level at 1690. Price action, while good, has crept up on low volume which is a hallmark of a right shoulder in a head and shoulders pattern.
I am very happy that the invasion may have been put to rest. But I do not want to get caught up in a wave of euphoria over it. In that the market plays chess too, it also pays to keep an eye on the chess pieces.
Marz,
ReplyDeleteAny specific reason for March 130 and dec 100 puts.If I understand you correctly most of the short dated calls you have are long and long dated put.
Whats your thought on spreads. Looks like you want to stay away from spreads.
Have you thought about long the best of breed( NFLX,LNKD,GOOG,WDAY,YELP) and short through puts.
Bill
I use the call options purely for tightly risk-defined directional trading. The long-dated puts are there because I feel the market action this year is very similar in structure and psychology to 1987. Yes, I could use spreads but rarely do. I could also buy best of breed stocks and be long puts, but I only do that when I like the tone of the market under the hood (volume, etc.). In my opinion, this market has been "off" since late 2009, but the market hasn't cared. So instead of using best of breed stocks, I've used the remainder of my SPXL position from March of 2009 (it was BGU when I bought it: 3X bull S&P) that is now up 664%. Since it is pre-blog, I don't mention it much. But that is primarily what I've been riding the rally with and hedging against since it's the best cost basis I have. Basically I'm a bear that participates in the current rising market in a very risk-averse way.
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