Back and forth consolidation action off a recent corrective low, has in Wednesday’s session, taken one trader’s bear flag in the likes of the SP-500 (SPY), and all but confirmed a bullish market-based Follow-Through Day or FTD on Day 11 of a “rally attempt” count per the likes of the growth-centric folks at Investor’s Business Daily.
Officially, Wednesday’s session still needs to complete its final hour of trade before any shifts in market outlook can be made definitively. But with the SP-500 up about 1.40% and the NASDAQ Composite up a commanding on 2.10% with volume on pace to top the prior session’s levels; a finish with our current stats intact would result in a nascent baby bull or “market in uptrend” from “market under correction” if one follows the technical rules of the game set forth by IBD.
“Rules” of course, are made to be broken on occasion. And given the recent spate of technical damage done to the market’s current crop of growth stars, sans the iShares Bull ETF (AAPL), maybe that needs to be given additional consideration? Further, our technical view remains cautious with the expectation for very limited upside potential in the market given we're entering a seasonally bearish period, have already enjoyed a truly strong “Best Six” and Fibonacci-based butterfly completion; and not to mention an incredible three plus year run off the March 2009 bottom.
Figure 1: XYZ Bear Call Spread
In appreciating what’s been presented, it might seem a bit more reasonable to continue to go along with a historical bias of selling in May; well, with bearish dated May option spreads and the likes. However, in the end and given a FTD, that would be a bit near-sighted and technically stubborn. Instead and given the circumstances, our view has shifted to one more appreciative of a range bound environment where just when it seems like things are getting exciting for bulls or bears; the market rips the rug out from those celebrating their directional prowess.
To take a cue from the Wall Street idiom to “Sell in May and Go Away”; selling a little something like a matching contract for every bright directional idea you think you may be onto; seems to make added sense and cents in our book or umm, “iPad”, even if you don’t agree with the choice of vehicle or spread type such as an OTM bear call spread in the iShares Bull ETF or XYZ.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
