Larry McMillan's CNBC Fed Survey grade was noted on CNBC yesterday. When disccussing the analysts that gave Ben Bernanke's term a negative grade, senior economics reporter Steve Liesman mentioned McMillan's "D" and quoted Larry as saying "this will be his grade in retrospect when the full effect of [Bernanke's] policies becomes known." Watch the video below:
This week’s feature article is a continuation of the one in the last issue. Here, we describe option strategies that are similar to owning stock, or are at least a way to reduce time value exposure, while still retaining some leverage in a speculative position.
What first appeared to be an oversold rally gathered so much steam that it has negated our previously bearish outlook (see indicator review, page 6).
$SPX made a strong upside push this week and that closed the downside gap from nearly a month ago. That officially terminated the "bearish" status of the $SPX chart. It's hard to say that the chart has turned bullish, though, since there is still overhead resistance at 1700- 1710. Underneath, there is support at 1660 and then stronger support at 1630-1640.
In our last issue, the feature article discussed whether it might sometimes be preferable to trade the underlying stock as opposed to buying an at- or slightly in-the-money option. This week’s article is a follow-up to that discussion: we are going to look at various option strategies that are, in effect, almost like owning the underlying stock.
Stocks gapped higher on the open yesterday and just kept going higher all day. $SPX has now closed above its declining 20-day moving average for the first since the market topped out just over a month ago. Oversold rallies – which this still may proved to be (although it seemed stronger than that on Monday) – usually die out at about this level: just beyond the declining 20-day moving average. Chart-wise, $SPX is now at the 1670 resistance area.
At this point, the $SPX chart is still bearish, because it has a sequence of lower highs and lower hows.
The equity-only put-call ratios continue to remain on sell signals. The weighted ratio continues to move higher almost every day, thus confirming its bearishness.
Market breadth is the lone positive area right now. Both breadth indicators improved enough this week to generate buy signals.
The market continues to fluctuate, seemingly with news about Syria. Dovish news is bullish; hawkish news is bearish. However, given the fact that there are intermediate-term sell signals in effect, there is a lot more going on than merely reacting to news about possibly attacking Syria’s chemical weapons delivery systems. $SPX rallied strongly, but failed near 1650.
The stock market has continued lower, after first breaking significant support at 1680 about two weeks ago. With the further breakdown this week, below the next support level at 1640, there is a distinct pattern of lower highs and lower lows. That makes the $SPX chart bearish.
Equity-only put-call ratios are both on sell signals.
The common perception among option traders is that option buying is the “best” approach to a speculative situation because of the great leverage that the calls or puts provide. But in many cases, ranging from extremely short-term holding periods to ones of more moderate length, where limited stock moves are likely, one may be better served by trading the underlying entity than by buying options.
The market is using the excuse of potential Syrian bombing to sell off sharply. Yesterday was one of the ugliest days of the year, but still wasn’t all that negative in terms of pushing indicators into oversold territory. $SPX broke down what had been potential support at 1640 (last week’s lows). This now brings support at 1620, and then at 1600 into play.
