Mr. Market was once gain able to push the major indices higher today. Three out of the four major indices are now in an overbought state and another push higher will certainly drive them in an extreme state. The market should struggle with the 1453-1455 area and certainly at the February highs of 1460. Typically, the market fails during the initial retest of the recent high and without nary a pause during the recent rally I expect to see a pause at 1460 and a short-term correction shortly after. The recent move has no doubt been strong, but it has been on fairly low volume which is another reason why I think the market could see another correction in the near future. A move higher over the next week, especially towards expiration, will mostly likely to enter a short-term play that favors a short-term decline. I would like to see our short-term proprietary measures move slightly higher and a move to 1460 should cause those measures to enter an extreme. I will keep you updated.
The push higher in the S&P (SPX) has put the short call strike in our Short Iron Condor strategy in jeopardy of being breached. With four days left until SPX settles we are only 8 points away. As much as I hate to take off a position for a loss if the market continues to push higher without a short-term reprieve (1-2 days) I will be forced to take off the position for a loss. With a win ratio that is typically in the mid to high eighties losses are expected, which is why capital preservation techniques are so important when using an Iron Condor strategy.
Next week brings the week of options expiration which is typically flat to slightly bullish. As the market enters the latter half of April we should expect to see some weakness. As the Stock Trader's Almanac states"April prone to weakness after tax deadline" and given the recent rally and potential retest of the February highs I think the historical tendencies could live up to the historical billing. We shall see soon enough.
Overbought/Oversold levels for April 13, 2007
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SPY - 78.9 (overbought)
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DIA - 74.5 (overbought)
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IWM - 76.4 (overbought)
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QQQQ - 64.7 (neutral)
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GLD - 81.6 (very overbought)
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OIH - 79.1 (overbought)
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Have a great night!
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com