As we have shown, there is a massive number of overbought put-call charts and just a general level of extreme speculation in the current market. In late 2017 and 2019, conditions were similar and they persisted into February before the market collapsed. The market is rarely so accommodating as to keep repeating itself, so while I definitely feel that a major correction could occur, I would expect our indicators to get ahead of that. But just in case something comes out of the blue, this strategy is designed to generate large gains in a collapsing market, at only a small cost if that does not happen.
Over the past three days, $SPX finally managed to break out to new all-time closing and intraday highs. Thus, the $SPX chart is bullish, as there is no classical resistance -- by definition -- when it is at all-time highs.
$SPX has advanced an astonishing 1,500 points, or 68%, from the March lows. No matter how you interpret that, it does not jibe with the economics caused by COVID-19. But TINA and FOMO are formidable proponents of buying stocks, and they have certainly won the day.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 23 on November 27, 1992.
The article that appears on our front page is generally meant to be informative and/or instructional. It often ties in with current market conditions, which means the topics are quite specific. We do, however, have a broader array of topics that we insert when market conditions warrant. This is one of those times. We will discuss the use of LEAPS (long-term options) as a substitute for stock ownership. Many brokerage firms and investment publications are proponents of this strategy. However, as you will see, it sometimes is over-rated.
The stock market came into the Thanksgiving holiday in a very strong fashion -- continuing the strong rally that has taken place throughout November. A move above 3644 would be into new all-time intraday high territory. Once $SPX makes that move, there is no resistance in the traditional sense.
Meanwhile, on the downside, there is support just above 3500. A close below there would be very negative, for it would place $SPX back within the old trading range.
Thanksgiving sets off a number of seasonal patterns, although we combine several of them for one trade. The three main seasonal patterns are:
1) post-Thanksgiving bullishness: buy the market at the close of the day before Thanksgiving and hold into mid-December.
We have been trading this seasonal spread annually every year since 1994, except for 1995. The spread has a good track record, but suffered its worst loss to date last year. All of the pertinent statistics are included below.