Monday September 22, 2014 – Weekly Market Update

Since hitting the 2,000 objective, the S & P 500
has started to pull back today. The QQQ is down
1.33% today as I write this.

So, is this the end of the bull market?

I don’t think so.

But, there is no question that the market is overextended.
Both in time and price.

Typical bull markets last for five years and are six
years into this bull market.

So, you need to be cautious.

At this point, we need to look where possible support
should be.

1,984.40 should be a level of support. And just above
that price is 1,992.18.

In fact, as I am writing this, the S & P is sitting right
at that price.

Now, you just wait to see if it can hold.

If it does, odds favor a move back up. If it doesn’t,
expect it to move lower … most likely to 1,984.

So, what do you do as the market corrects?
I always like to see what stocks are moving up on
days when the market is selling off. When a
stock moves opposite the overall trend, it is
usually a good sign.

Watch the price levels I share and see if they hold.

Last week, I mentioned how the TLT should
find support around 112.50. In fact last Thursday,
I wrote a post about. You can read it here:
http://fusiontraderblog.com/?p=157

Had you read that and bought the $112.50 call that
expired the next day, it would have set you back
about $50 per contract.

The next day, they were worth just over $2 per contract.

So, in one day, those contracts increased about $150
per contract or 300%.

This is why I love weekly options … especially trading
them late in the week.

One thing I would caution you on is this. I see a lot
of services popping up espoucing the use of weekly
credit spreads.

The typical sales language states you can win 80% or
90% of the time. Well that may very well be true.

The thing they don’t tell you is that when you lose, you
will most likely give back all your gains on the winners.

Think about it.

If I put on 10 weekly credit spreads using a $5 wide
strike, I maybe able to net 30 to 50 cents per position.

If I win 10 in a row, I could make $300 to $500 for
a one lot.

Then the 11th deal comes along and the stock gets blown
out, dropping below the strike you sold.

On a $5 wide spread, that means you just lost $500 or
virtually all your profit.

Is it possible to make money over the long run with this
type of strategy? Yes, it is.

But, with the market, you always have those situations
that are unexpected.

Just my word of advice for today.

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