Taking a look at the S&P 500 since the market bottom we can see that the market bounced off the 38.2 Fibonacci level in beginning of July (orange lines). I do not use Fibonacci levels regularly for trading but have tried to keep it in my toolset for events like this. Please throw any comments or insight on this back to me, I’m interested to learn more about Fib analysis. I think if the S&P can break through resistance this may be something to keep in mind for longer term holding strategies.
The three arrows designate a reverse head and shoulder pattern, volume didn’t follow however.
Once again, this chart was constructed on Freestockcharts.com
The second chart is a closer look at the S&P 500, spanning about 7 months. You can see where it bounces from the 38.2 fib level clearly here.
An option trading strategy for the near term is opening a long straddle. This is possible using ATM options on the SPY. While the index has shown strength lately, it may not be lasting or solidly founded. Quick news stories are the catalyst lately for big intraday moves. However, the news on similar events changes from week to week and this should be viewed as weakness because it definitely doesn’t make for a strong bullish market. Unemployment data seems to have taken the lead as most important market driver. While the numbers fluctuate, they are not moving steadily lower and confirming a strong economic turn; sideways movement is never strength. Being based in Detroit, I can assure you, the numbers aren’t accurate (in a bad way) and won’t be improving quickly.
*See quick note/tip on trading Unemployment numbers at the end.
If the index is unable to break through to new highs above 1225, look for another correction to the 1180 level (take-profit zone on the straddle; also another good area to open a quick new long straddle). If the 1180 is broken and confirmed, look for the index to fall to the 1130 area (white horizontal line). A more complicated strategy would be to manipulate delta neutral positions on these levels.
*Note: I am currently a senior at the University of Michigan. While job hunting over the last year or so I have noticed one way to guage unemployment numbers, though it isn’t numerically precise. Sign up for websites that are compilation job listings such as Doostang.com and efinancialcareers.com. Then subscribe to their new postings in cities such as Chicago, NYC, Boston, SF, and yes even Detroit. When postings on the website increase look for a data jump about a month later, vice-versa when they decrease. The major cities may give you short-term/long-term insight on the economic situation, while somewhere like Detroit will be able to show the long-term picture as it will be the last to rise, and must be fundamentally healthy to begin growth. This is all subjective, so use at your own discretion.
Hope this helps,