- SPX Monday Narrow Closing Range: 3883-3943.
- SPX Monday Broad Closing Range: 3844-3968.
- SPX Weekly Range: 3850-3990.
- VIX: Underpriced.
There is no doubt that I am emotionally bearish on the market but the wonderful thing about having objective models using market structures like the proprietary one I built and use is that it is inconsiderate of my frail human emotions. My model returns probabilistic outcomes and that is what I trade. This approach simultaneously creates good trading outcomes and saves me from bad trading outcomes. The result is that the model tells me that the market isn't nearly as dire as I feel the market is at this time.
Still, the market is being won over by the bears. Each attempt at a solid breakout is repelled putting us in an at-best consolidation market and at-worst the throes of a dying bull market.
S&P 500 (SPY): Further consolidation after failed bullish breakout
NASDAQ (QQQ): Further consolidation after failed bullish breakout
Russell 2000 (IWM): Further consolidation after failed bullish breakout
European Equity (EFA): Bullish after a successful breakout
Japanese Equity (EWJ): Cautiously bullish after a successful breakout
U.S. Dollar (UUP): Bullish after a successful bullish breakout
British Pound (FXB): Bearish after a successful bearish breakdown
Japanese Yen (FXY): Bearish. Not even a hint of bullishness
Euro (FXE): Bearish with a good chance of a further breakdown
Canadian Dollar (FXC): Consolidation after a failed bullish breakout
Gold (GLD): Bearish. I will look to short if we can make $164-165ish
Silver (SLV): Bearish. Currently in consolidation.
And now is the time when I contradict what I've just said because of the reality of implied volatility. My model prices downside implied volatility fairly versus the market but shows implied upside volatility underpriced which indicates that there may be some alpha generation in the purchasing of out-of-the-money S&P calls expiring Friday. Now, I will leave a few things to the imagination and not give away strike selections for free. But, feel free to use your imagination on this one.
Happy Trading and I'll see you again on Tuesday morning!
Analyst's Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SPX over the next 72 hours.
I am an active trader and may take a long or short position in any securities mentioned at any time. With that said, I closed the week almost entirely in cash so that I can take an objective look at the markets and decide where I want to position myself.
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