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Compression Breakout Looming
www.oneoption.com
The price action during the last week shows buyers and sellers are in balance.
PRE-OPEN MARKET COIMMENTS FRIDAY – The market is trapped in a compression at the all time high. The government economic releases have stopped because of the government shut down so we don’t have that catalyst. The last look we had suggested weakness.
Buyers and sellers have been able to move the market, but most of this activity has been program generated.
The FOMC Minutes were a little more hawkish than the market would like with half of the officials favoring a rate cut this year and the other half favoring no rate cut.
Earnings season will start next week and that will provide us with some insight on consumer credit.
High yield corporate bonds (HYG) started to decline and yields are rising. That is not enough to cause concern, but it could be a sign that recession fears are starting to increase. It is right on the 100-day MA and that support needs to hold.
I’m reaching for comments. The bottom line is that the market is trapped in a compression near the all-time high. The trend has been strong and I am selling OTM naked puts on strong stocks that I would not mind owning at lower levels. I am going 3 weeks out to take advantage of time decay and as options expire I am adding new positions. I can easily hedge myself with futures if we get a drop. If we don’t, time decay will yield an 8-10% return on these plays. Seasonal strength will start in two weeks.
Day trading is challenging right now. You need strong price action and heavy volume. The best set up is an early dip where the stocks remain RS. Once the market finds support, your window to buy these stocks opens up.
If you look at the weekly chart, you will see that a doji is forming. That means buyers and sellers are in equilibrium and that the market could go either way. You will also notice that there was a doji two weeks ago that was resolved to the upside.
Support is at $667.67 and resistance is at the all-time high.
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