While the market has provided great short term trading opportunities, especially with this week's downside action, I have not seen any signals on my momentum indicators to get me too Bearish. The Stochastics indicator on the weekly chart above, shows that it's prudent and at least be adding some put options to any rallies, just in case.
I generally like to see three-period tests of tops and bottoms before I get secure in taking positions. With that in mind, I would be looking for some opportunities to add call options to possibly test last week's closing price of 210.01 (SPY).
On the longer term, we can see that on the monthly chart, prices have come down to test the 20 month moving average.
Positive momentum still remains on the longer term so it will be interesting to see if this moving average holds. One must be prepared for some kind of sell off to open the day Monday morning in light of the massacre that occurred in Paris. But more preferable would be a positive rally led by defense and bank stocks.
As we look at the monthly chart, we can also see that there is a three period test of the low setup forming here as well. September's close of 191.61 could be tested at the end of December, right in line with the execution of a Fed rate increase.
So my preferred scenario is that we moderate this coming week and make a push to take out the highs. I had some short-term puts (11/13 and 11/20) that I closed out on Friday and started to nibble at some 12/4 SPY and IWM calls. As mentioned last week, I will be looking for a higher level to make some longer term put and SDS/DXD positions. If markets test the high on 11/27, and fail, then I would be more comfortable in loading up for Bear, establishing a position that would be closed out should we appear to be holding the 191 lows but also holding a longer dated put position targeting much lower price levels.
Current buy target, SPY 200 area.
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