The focus of my studies on markets is to determine which side is stronger (buyers or sellers), along with where and when the balance of power is likely to shift. We then use my knowledge and judgement based on experience to put the Superleverage power of options to work, helping Options Hotline subscribers stay a step ahead of the crowd as they vie for fun and profit. Today, I’d like to share my view of the market’s current condition.
After a staggering start to 2016, the S&P 500 found its footing in February and launched a natural retracement rally. Former support often marks resistance. As you can see on my daily candlestick chart below, SPY shares have rallied into my $200.30-$203.87 resistance (supply) zone. The rebound is forming a potential bearish rising wedge pattern. Such patterns resolve nearly 70% of the time with a break to the downside. Though price could extend higher, in my opinion, this represents an area where sellers are set to step up and we are likely to see a subsequent turn lower. A break of support could see the overall downward trend resume and drop prices below last month’s low.
The technical levels I’m watching are support at: $193.50-$196.50, $189-$191.50, $185-$187.50, and $181-$182.86. Resistance is up to $203.87 and $205-$208.
Bulls have been emboldened by the past few weeks’ action, but professionals know they haven’t overcome all the technical hurdles necessary to give this move staying power. Breadth is unimpressive and buyers are losing momentum with each successive push higher. This tells me the market is not as strong is it may appear to many. The negative character of today’s trading session (black candle line pressing support) tells me we could be on the verge of a break lower.
A break of the positive influence of the wedge’s support line will show sellers have taken charge. Our readers were advised over the weekend to purchase the SPY May $195 puts and their positions were triggered on March 7th at $4.50. SPY was down 1% today and our recommended option traded at $5.38, +20% in one day, with an always known and strictly limited risk!
That’s why I call it Superleverage.
I hope you enjoyed this post. I look forward to hearing from you and welcoming you to the growing ranks of our readership.