Trump had his inauguration on Friday – and for a moment in the morning – it appeared we might have a chance to break up – after clearing the 2268/69 resistance that failed the prior day — only to then drop once again to 2260ES at noon.
Jimmy Carter – 1/20/1977 – Big Down Day
Ronald Reagan – 1/20/1981 – Big Down Day
George Bush 1/20/1989 – Down Day at the highs with the following big down day
Clinton 1/20/1993 – the market closed at the lows
George W. Bush – 1/20/2001 (Saturday) the next Monday was a down day
Obama – 1/20/2009 – – the market closed at the lows
Now, we can add:
Trump – 1/20/2017 – attempted rally but pulled back to support, closed mostly unchanged
At the open, we popped up towards that 2272 resistance point and it looked like we were consolidating for higher, but then we pulled back to 2260ES support.
A look at the hourly chart shows that we are forming higher highs and higher lows (in pink). At the same time, we did have higher highs and higher lows (in blue) before, but it failed on the 18th and 19th.
So the set up keeps appearing here and there, but the market just doesn’t follow through. This market has been horrible for options – particularly OTM calls which we had anticipating a move up, but with the failed follow throughs, time decay hits the options as each day goes by and there is no rally. So we lost about half of our principal on that OTM call.
Out of the money options had strike price of 227 – which was actually just slightly out of the money — that SPY 227 roughly corresponds to the 2270 ES level.
These options were purchased with no intrinsic value – only extrinsic value. The potential for big upside existed if the market did move up beyond the 2270ES level and stay there, but the market just didn’t follow through.
Short put spreads with 225 or 225.5 SPY strike price could work well. However, implied volatility is very low and it’s hard to get a decent risk-reward ratio – the exception was on Jan 12 – if you were able to put on the put spread on the intraday dip belwo 2250. The downside with this short put spread strategy is if you enter above 2260 (where most of the action happens) – if the market drops a good amount, losses can pile up quickly — particularly because you would be shorting very cheap options that have the potential to increase in value quickly if there were to be a sudden move to the downside.
Here is a video on the pros and cons of OTM calls:
The only promising sign is the setup of higher highs and higher lows.
Meanwhile, it appears the Russell has been consolidating for more than a month and a half – slowly drifting down until the support region multiple times.
I believe there should be a rotation out of the Nasdaq and into the Russell – as the Nasdaq has been forming new highs and has formed 5 waves up. While the potential exists for further upside in Nasdaq, it seems the Russell has been coiling up a bit more.
Notice on December 16 – the SPY (below) dropped) – whereas the futures chart did not. They are both S&P500 charts, yet there is a slightly difference explained in the link above.
The consolidation has been going on for way longer than expected. We anticipated a bounce by now – which did happen, but then the market pulled back again and tested lows – so we lost on our IWM calls here.
Previously, we suggested Nasdaq with the potential to move up – which we did as we we touched as high as 5080 region before pulling back. So this chart labeling was correct.
In the Russell, the potential inverted head and shoulders pattern did not hold up. – as we faced resistance in the 1362 region — it popped there just for a minute after the open and then reversed down immediately and made new lows below 1340.
The setup was there – but the market didn’t follow through.
The S&P is right back wheere it was on the day when Yellen announced interest rate hike in early December 2016.
17.2 is the resistance zone – either we grind up and blast through it – or it turns back down for C-wave of potential wave 2 down.
We exited our USLV position on jan 17 with silver peeking above 17.
Our entry for this portion was on Jan 6 – when Silver was at 16.45 – on that wave 4 pullback. We also exited GDX calls in that region, awaiting a pullback.
Ideally, a pullback to 16.55-59 would be ideal.
However, the pink count is also very possible – so it depends on whether this 17.1-2 region serves as resistance into next week.
Sign up to become a member to access to premium videos and you get the insights you need to make more educated trade decisions. And yes, you’ll get join our Whatsapp mobile text alerts for weekly trade recommendations.
|Get Trade Alerts Now|