The feature article discusses various trading strategies and systems around Thanks-giving Day. The article culminates with the recommendation that we already made in previous Hotlines: to buy “the market” at the close of trading on the Wednesday before Thanksgiving. The article provides some new ways of looking at the entire trade, including holding longer than we have in the past.
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Price action -- via the $SPX chart -- and volatility have remained bullish. We have often said that price is the main indicator and that has certainly been the case this time.
Equity-only put-call ratios turned bearish a little more than a week ago and remain on sell signals.
Market breadth has generally been weaker than the market until very recently, but now the breadth indicators are rolling back over to buy signals.
With nearly four thousand optionable U.S. equities and ETFs and over 400,000 individual option contracts available on a daily basis, retail option traders need a way to determine the optimal way to allocate their investment capital. By employing some well known statistical techniques to calculate the expected profit and return for a set of option positions, an option strategist can rank possible trades.
There are a number of systems and indicators that we follow – some with frequent signals, others with as few as annual signals – that are worth noting, as the broad stock market makes new all-time highs. Some of these are related to market prediction, while others have nothing to do with stocks. So, in that sense, this article is a bit of a potpourri.
The stock market has had plenty of reasons to weaken, yet it can barely go down at all. This is a very powerful market.
$SPX has support at 1730, 1750, 1770, and now may have established another support area at yesterday's lows near 1780.
Equity-only put-call ratios generated sell signals this week.
Market breadth continues to be relatively weak. As a result, the breadth indicators generated fresh sell signals recently.
The market has now pulled back from its recent highs, accompanied by sell signals in breadth and the put-call ratios we follow. The “modified Bollinger Band” sell signal remains in effect, as well. However, without $VIX, any correction is likely to be minor. But if $VIX should close above 14, the bears could begin to flex their muscles.
In a recent issue of The Option Strategist Newsletter, we deatailed a trading system based on a modified version of John Bollinger's Bollinger Bands. We have since received numerous inquiries asking how we calculate and plot our "modified" version.
$SPX broke out to new highs, and that is bullish, but severe overbought conditions still exist.
$SPX has support at 1750-1770, the range it traded in for a couple of weeks. Also, there is further support at 1730. Equity-only put-call ratios are on buy signals, but are in extremely overbought territory.
Breadth has been relatively weak for some time now. For example, $SPX is making new highs, but cumulative breadth is not. Thus, a negative divergence has arisen.
Wednesday was a very powerful, bullish day. It mirrored the action of last Friday: S&P futures were trading down sharply before the NYSE open, but once that market opened, it was off to the races on the upside all day long. Last Friday was a 30-point reversal day from low to high. Yesterday was a 24-point upside reversal. Those are huge moves, especially in light of the fact that actual volatility has been so low lately.