Expiration week is finally over and the bulls have managed to once again push the market higher. Since the lows established in July 2006 the S&P (SPY) has been higher during expiration week 11 out of 12 times. Even with the bullish sentiment this week I still expect to see weakness over the short-term (1-5 days).
As I have stated over the last few days I do expect to see another test to the downside next week. Maybe, not to the recent lows, but at least a decent move to the downside particularly if the market can reach an overbought state going into the week of post expiration. Also, the week after June Triple-Witching has seen the Dow lower 15 out of the last 17 years. With strong resistance overhead (1540 in SPX) coupled with seasonal weakness next week I do expect to see the market take a breather over the short-term.
This should bode well for our ETF Extremes strategy. With the spike higher this morning we attempted to place a trade, however, once we place our order the underlying SPY quickly moved away from our target price. With the market trading in a fairly tight range we decided to keep the order open in hopes of being filled later in the day. Unfortunately, SPY did not move higher and we were forced to cancel our order.
I stated in email to a subscriber earlier today "Remember, opportunities are made up easier than losses. Furthermore, we never like to hold a position over the weekend. A trade still looks likely early next week, but as always we will not force a trade so a highly probable opportunity must be there."
The June Expiration cycle also saw a 9.2% gain in our SPX Short Iron Condor strategy. Not a bad return for a four week period. Even with the recent volatility over the past few weeks our short strikes were never in jeopardy. Since the April Expiration cycle we have increased our range from 100 points to 140 points. With the SPX currently trading at 1533 the S&P would have to move up/down 4.6% over a four week period for our short strikes to be in jeopardy. The probability of such a move is low.
As for the July Expiration cycle, it is a five week cycle, so we have decided not to establish a position next week as we prefer to only go out a maximum of four weeks. This could prove to be advantageous if the market does indeed move lower next week as a move lower will increase the VIX (volatility measure) and will allow us to bring in more premium. We are perfectly happy with gains ranging from 6-10% over the course of four weeks. I will talk about this further in our newsletter/expiration report out this weekend (for paid subscribers only).
In the report I will also discuss the upcoming Black Gold strategy which uses the underlying OIH and GLD and is based on the indicators used in our ETF Extremes strategy. We will be following the progress of this strategy over the next three months in our newsletter (subscribers only).
Overbought/Oversold levels for June 15, 2007
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SPY - 62.1 (neutral)
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DIA - 65.8 (neutral)
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IWM - 66.4 (neutral)
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QQQQ - 70.7 (neutral)
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GLD - 48.6 (neutral)
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OIH - 75.1 (overbought)
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Have a great night!
Andrew Crowder, Chief Investment Strategist,
www.crowderinvestments.com