What a day... this market is hard to believe. Just when you think there are no more legs the this rally it takes off again. I was a bit surprised when I saw the close today. I have some directional trades doing well, some not so well, and some - like our highlighted condor - that I'm really wrestling with. That being said, I am very skeptical about this rally for several reasons:
- The VIX remains in the trading range that I've written about recently and mentioend in yesterday's post. Until in breaks below the 40's I don't think we will see any sustained rallies.
- We've seen sooooo many times when the market has rallied into an anticipated announcement (like tomorrow's Fed update) only to fall after the actual news. Will this be different? It seems like traders wait for a silver bullet and then when it doesn't come (and it doesn't) they are surprised and disappointed.
- There are several points of resistance we are currently facing. Right now the SPX is pressed up against one, and another significant one lies ahead at about 805. It is unlikely we will get beyond that.
- The rally is overextended. I mentioned some research in a past post called "Muted Gains", where we see that rallies like this EXTREMELY rare. That doesn't mean it can't go on, just that it's unlikely.
You can see that the current price is far right of center. Our nearest short strike, the 1325 call, is not yet at our adjustment point, but is at a Delta of 14 - the "warning zone". Our adjustment point on this spread is when the Delta on the 1325 call reaches 20. In this case I have planned an adjustment to keep the trade in place. It will take about 25 points tomorrow to hit the adjustment mark... of course I'm hoping that doesn't happen, but I'm prepared. Think bearish thoughts!
Good Trading...
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