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Jeff Pierce
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I’m a swing trader of momentum stocks with a holding period of anywhere from a few hours to a few months. I run a number of screens to locate the strongest/weakest stocks out there, using technical analysis to determine my entries and exits. Trying to calculate the intrinsic value of stocks in... More
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  • S&Amp;P 500 Stretched Like A Spring

    By Chris Ebert

    Stock prices tend to act like a spring. The further they are stretched to their limits, the further they tend to snap back in the opposite direction.

    (click to enlarge)

    The opposite is also true. When stock prices are not stretched very far, they don't recoil nearly s far in the opposite direction when the stretching force is removed. This is particularly true of large baskets of stock - stock indexes such as the Dow, Nasdaq or S&P 500 - since the forces that can move an index are limited. Earnings or other news can move an individual stock, but for a large index the news tends to be anticipated and slowly baked in, limiting it's overall effect; thus recoil is often one of the largest forces affecting the movement of an index such as the S&P 500.

    Without a Bear market to stretch stock prices too low, there is simply not as much force to propel stock prices higher when temporary bouts of selling tension are released. This past October saw a rather substantial period of selling tension, but even at the lowest of the lows, the S&P 500 barely met one the most lenient criteria of a Bear market - one such criterion being the lack of profitability of $SPY Covered Call options.

    Other criteria, including the ubiquitous definition of a Bear market being a 20% decline off the highs, were not met this past October. Now that the stock market seems to have heated up once again, it may be helpful for traders to consider just how much tension there was in the spring. In other words, how much upward momentum do current stock prices have considering effect of the rather meager pullback from October?

    One way of measuring the snap-back momentum is to look not just at how hot the stock market currently is, but how hot it has gotten, historically, after meager pullbacks like the one that just happened a few weeks ago. From the following chart, it becomes clear that few rallies get so hot as to exceed the 10%-above-Bear level, and only then when the rally was preceded by a significant Bear market. The current rally in the S&P 500 may therefore be reaching it's upper limit, temporarily perhaps, but reaching a limit nonetheless. If past instances are any indication, the current rally may have used up nearly all the momentum it gained from October's pullback. Historically, it doesn't get much hotter than this - hotter than 10% above Bear (at the current level of the S&P 10% above a Bear market equates to about 200 points). It does not get much hotter than this unless it follows a significant Bear market.

    (click to enlarge)
    Click on chart to enlarge

    The following levels are each 10% above a Bear market:

    Nov. 21, 2014 S&P 2038
    Nov. 28, 2014 S&P 2052
    Dec. 5, 2014 S&P 2089
    Dec. 12, 2014 S&P 2132
    Dec. 19, 2014 S&P 2145
    Dec. 26, 2014 S&P 2149
    Jan. 2, 2015 S&P 2120

    Without a Bear market to release spring tension, each of those levels would be difficult to surpass, based on historical performance of the S&P 500 following minor pullbacks, such as the one that occurred this past October, when such a pullback did not materialize into a significant Bear market environment.

    *Option position returns are extrapolated from historical data deemed reliable, but which cannot be guaranteed accurate. Not all strike prices and expiration dates may be available for trading, so actual returns may differ slightly from those calculated above.

    The preceding is a post by Christopher Ebert, co-author of the popular option trading book "Show Me Your Options!" He uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. Questions about constructing a specific option trade, or option trading in general, may be entered in the comment section below, or emailed to OptionScientist@zentrader.ca

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    Related Options Posts:

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    Nov 22 2:40 PM | Link | Comment!
  • The US Dollar Remains Stubbornly Bullish

    By Poly

    This is an excerpt from this week's premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.

    (click to enlarge)

    The Dollar stubbornly refuses to fall, even though it too (like crude/bonds) is very deep into its Daily and Investor Cycle timing. Technically it is weakening, as seen within the indicators on the chart below. I believe this is a sign that the dollar has topped and is about to begin falling. When it eventually does fall, it will probably not look back for many weeks.

    Such setups in the past acted as bullish consolidation before launching higher, mainly because they occurred earlier in the Investor Cycle. This time around, being that we're so far past the normal timing band, I expect this is more about the Cycle knocking on support lines that are destined to eventually give way. In the later part of any Investor Cycle, these types of setups normally break to the downside.

    (click to enlarge)

    Related Posts:

    Stairs Up And Elevator Down?

    Crude Has Likely Hit Rock Bottom

    Plenty Of Reasons To Explain Recent Selling

    Tags: UUP
    Nov 22 2:26 PM | Link | Comment!
  • Head's Up Traders, Here's Some Star Candy!

    By Astrology Traders

    Karen here from Astrology Traders, I've got some great news and some really important astrology projections that will help you navigate the markets for November.

    First, we want to welcome Christopher Ebert, full time trader and options specialist to our Astrology Traders Service. Chris brings his options expertise and educational abilities to our team for traders looking for unique hedging opportunities and lower risk trades. You can read more about Chris at Astrology Traders

    November 5, 2014

    November 5th is important, I know it's the day after midterm elections that's not why it's important, the bigger concern here is the transit of Saturn in Scorpio activating a point that resonates with a dispensation from 1984. I don't want to go into the esoteric meaning here, I will simply define it as a block to those who are the sympathizers of war. This is HUGE and it will not go by unnoticed! I have been writing about this time frame for months now and have warned that 30 days prior to this date (October 5th) a stock market correction and acceleration of conflict in every corner of the earth would unfold while those who are the "holy power elite" begin to go crazy mad. The current uptrend is at risk of reversing beginning October 31st. Below are my date ranges from our September 28th newsletter update:

    October 2nd. - There could be a subversive move regarding the gold/silver trade with the Comex and CME Group. This is likely inconsequential for the general markets, however, I want to point it out since the price manipulation for the metals seems to be reaching a feverish peak within the gold bug community. Demand for the metals is very high and physical purchases are up over 200% so far this year.

    October 5th-October 13th- A critical time that could bring a crises. Volatility that is difficult to trade, best to hold tight and wait for setups.

    October 14th-October 30th- There is potential for a rebound in the markets here, however this time frame is interlaced with other difficult patterns, including a solar eclipse on October 23rd at 0 degrees Scorpio. There are more ominous portents coming with this eclipse that I will cover in next weeks update.

    October 31- November 17th- A significant pullback is likely.

    Currency and bond volatility will likely spike November 7th-8th while the Nasdaq looks to be more vulnerable with Uranus (rules technology stocks) is in square to the United States natal Sun at 13 degrees Cancer.

    Are you positioned for the market volatility in the coming weeks? If not come check out some 'options' (pun intended), we have just the opportunity for you. Join our free webinar next Thursday at 3;30 Eastern. We'll be discussing the trends going forward and we're gonna show you your options.

    Stay tuned for the webinar registration next week.

    Nov 06 9:42 AM | Link | Comment!
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