After three days of selling the bulls decided that it was time to step back into the market. After reaching oversold territory yesterday all of the major benchmarks bounced today and are now situated firmly in a neutral state. It took a while for the market to get going today, but around 1:30 EST the bulls appeared and took back roughly half of the decline yesterday.
The next substantial move should give a clear signal as to where the market is headed over the intermediate-term. Clearly, the bulls and bears are in a tug of war and probably will for months. As I have stated over the past few weeks, I expect to see the major indices carve out a trading range and then bounce within that range as the summer progresses.
As for the short-term, options expiration is next week so be prepared for some volatility. Since the low established in July 2006 the S&P (SPY) has been higher during expiration week 10 out of 11 times. If the market lives up to its recent historical precedent I would expect to see the historically weak period of post options expiration kick in.
Even with the move today our ETF Extremes is still close to a signal. My guess is that a signal will be triggered within the next 1-7 trading days. It has been several weeks since our last signal, but this is not surprising as we have seen droughts like this before in the strategy. Opportunities are made up easier than losses so we will never force a trade due to lack of a lack of signals and with a cumulative return (add the trade profit/loss on the performance page) of 130.7% since Jan. 2006 why would we. If you,let a few pass you by don't dwell on what could have been. There will always be more opportunities around the corner. Remember, this is a marathon not a sprint.
This is not a get rich quick strategy, but rather a long-term approach to options trading/investing that should continue to handily beat the overall. Yes, there are short-term plays that can make a huge gains over the short-term,but as any professional options trader will tell you most, if not all, blow-up in due time.
This is one of the frustrating aspects of my newsletter service. In the options world, individuals interested in newsletters become disillusioned by the outlandish gains that are reported without fully understanding all aspects of options trading. Many think the more you trade the better. The more action, the more exciting. It makes sense, but unfortunately, it is not how one is able to sustain themselves in the options arena for a long-period of time.
Our theory is less is more and our performance speaks for itself. We teach sound capital preservation and money management techniques coupled with a disciplined strategy. This does not mean that our strategies are the holy grail. Let me be frank, that does not exist. We are realists. Many think that this the crutch to our approach. However, I have to disagree wholeheartedly.
When I began this newsletter my goal was to take a boutique approach. I wanted to teach people effective strategies that they could use for the long-term. I look at our strategies like an individual security. Every strategy, whatever it may be, has its strengths and weaknesses so why not diversify a basket of strategies, much like a hedge fund. Putting your eggs in one basket, particularly in a leveraged investment is a risky endeavor and in my opinion an irresponsible way to manage your hard earned money.
As I stated in the June 1 newsletter: "one thing we do know for certain is that we have found a rare, unique, and concrete opportunity that makes the world of sense to us and we trade it to make gains over the long-term and the long-term is what matters".
Overbought/Oversold levels for June 8, 2007
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SPY - 42.0 (neutral)
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DIA - 41.9 (neutral)
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IWM - 43.6 (neutral)
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QQQQ - 47.6 (neutral)
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GLD - 23.3 (neutral)
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OIH - 39.1 (neutral)
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Have a great night!
Andrew Crowder, Chief Investment Strategist,
www.crowderinvestments.com