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Slump & Jump

|Includes: AMZN, GOOG, International Business Machines Corporation (IBM), SPY

There was a notable development in a shift in the pattern of the response to earnings reports from simply ‘sell the news” to sell the news and then buy the stock right back up to the report levels. This post earnings “slump and then jump” occurred in IBM, Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOG) and all may now offer short entry points as the gaps are filled.

The overall price action has been pretty positive over the past week with the S&P 500 both a pushing through both the 50-day moving average and the psychological 1100 level. A reclaiming of the 200-day moving average at 1120 would begin to form the right shoulder of an inverted H&S pattern that could be the base for a new leg up towards the 1200 level.

But with fear still lingering in the wings as evidenced by the relatively elevated level of the VX and the skew of its futures, and markets increasingly dominated by a variety of program trading, the resumption of a steady trend higher might be hard to come by during the slow summer months. I will be looking at an iron condor in the Spyder Trust (NYSEARCA:SPY) on the premise that the market will remain between 1050 and 1130 for the next few weeks.

I will also be looking to establish some bearish positions off the slump and jump patterns described above. I will likely be using credit call spreads as the strategy as I think it will be case in which upside will be limited rather than an imminent sharp decline.

Given that I am looking at adding some trading shorts in individual names I will likely look at using the weekly options in SPY to get some upward exposure to hedge against a sharp rally in case money starts flowing in.

Disclosure: None