By Chris Ebert

Note to readers: Only the charts and the Market Summary change from week to week. All other text remains the same, in order to allow regular readers to quickly absorb the entire Brief.

Each Thursday evening, we take some time to reconcile some of the varied options indicators available for the S&P 500. These indicators are unique to zentrader, and were developed in order to give readers an edge in the stock market.

These indicators were meant to be tangible – easily understood at a glance – thus providing an instant snapshot of the stock market to anyone regardless of trading experience, or the lack of experience.

Taking the Stock Market’s Temperature

First, we take the stock market’s Temperature. We need to know if the stock market is hot right now, or if it has cooled off. In other words, is this a hot Bull market in which stock prices are going up, or a cold Bear market in which stock prices are tumbling?

To take the Temperature of the S&P 500, we look at the performance of a simple option trade known as a Covered Call. Covered Call trading is almost always profitable in a Bull market, and very often results in losses in a Bear market. Conversely, if Covered Calls* are profitable it is currently a Bull market, and if Covered Calls are returning losses it is a Bear market.

 SNP Temperature -110

We consider the point at which Covered Call trading breaks even – returns zero profit and zero loss – to be an S&P 500 Temperature of zero. Then we determine whether the S&P 500 is above or below that all-important break-even point. By measuring the distance of the current level of (more…)

By Poly

This is an excerpt from this weeks premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.

Cycle Counts

 

Cycle Count Observation Probable Outlook Cycle Clarity Trend
Daily Day 39 Range 36-42 Days – 1st or 6th Daily Cycle (depends on IC) Bearish Green Failed
Investor Week 8 Range 20-24 Weeks Bearish
Green Failed
4Yr Month 74 Range 50-56 Months- 8th Investor Cycle. Bearish Green Up

This was not an orderly, and very far from typical, Daily or Investor Cycle sell-off. What this crash like move has created are massively wide Bollinger Bands and a new period of extreme volatility. The market has technically corrected (-10% price), but most corrections are a process and very rarely just five session affairs. Looking back over the decades, such events occur on average every two years within any healthy bull market. But in almost every case, the process involved a complex back and forth series of movements that ended with a significant clearing of sentiment and reset of long-term technical indicators.

Therefore, we should have entered a down-trending period that will be marked with frightening falls (vastly elevated risk), as well as the likelihood of massive counter-trend rallies. Just like in 2002/03, 2010, and 2011, I believe the markets have been broken wide open and we’re in for a 2-3 month period of wild swings and elevated volatility.

In the short-term, losing 200 points in five sessions was just a matter of too much, too quickly. Because the S&P was already in the timing band for a DCL, we’ve likely witnessed the first big snap-back rally created by such a massive drop and are in the early portion of a new Daily Cycle. I’m expecting higher prices still before the market runs into serious trouble again, although with a period of high volatility dominating this market, do not expect it to be an easy ride in any given direction.

 

8-30 Equities Daily

There is some disagreement on the longer term market direction and the possible duration of this unfolding correction. The Weekly Cycle count is not “crystal clear”, meaning that where the last Investor Cycle Low occurred is not immediately obvious. Because this current correction can only end with the next Investor Cycle Low, there is some discussion on how much further this correction has to go.

A case could be made that this 10% plus correction is already the end of both an Investor and Yearly Cycle. If past Cycles are a guide, visually this looks very much like all the dips seen since 2011, all of which led to significant new bull market rallies. But that is not my primary expectation at this point. I believe, based on the technical evidence, that this is just week 8 of the current Investor Cycle. (more…)

By Chris Ebert

Sometimes it can be helpful for a trader to step back for a few minutes and view the stock market from a different perspective – a perspective in which much of the ordinary noise is absent. While there is a place for up-to-the-minute news and charts of stock prices, there is also value in the quiet solitude of an option trader’s perspective.

This past week was unlike anything that has occurred in recent times in the stock market. The nearly-unprecedented decline in stock prices that sent the Dow Jones plummeting over 1000 points Monday (intraday) was followed by an equally amazing rally that more-than erased the entire loss by Friday.

It’s enough to make a trader’s head spin; and coupled with the economic news of the day it’s just too noisy for a trader to think clearly.

Options are much less noisy. Certainly option premiums are affected by the news, since volatility tends to cause premiums (in general) to rise. But, option trading is based on expectations of what the future holds for the stock market, not minute-by-minute changes in stock prices.

As such, options tend to be much more stable instruments than stocks – slower to react to changes in the market environment – making options reliable indicators even when the stock market goes wild, as it did this past week.

OMS 08-29-15 Bull

* Option strategies referenced above are analyzed for profit or loss on expiration day only and are opened using an at-the-money strike price, 4-months to expiration, using options traded on a broad-based ETF such as $SPY (NYSEARCA:SPY)

Above is the chart of the Options Market Stages that is compiled and presented regularly here at zentrader. The chart (more…)

29
Aug

By Jeff Pierce

Things are starting to come into focus as to the future direction of the markets in my opinion, and when I say opinion that is what my market timing signal is telling me. On August 20th we got our final confirmation that the markets were in full on bearish mode and you saw what happened after that. I believe things are just getting started with a new trend in the process of forming but these do take some time. Expect further upside to suck in the masses and convince everyone that last week was an anomaly and that it’s back to business as usual.

I explain further in this short 5 min video. Now is the time to be in cash and looking for short entries.


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