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 -51

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 (more…)

By Chris Ebert

The stock market has been compared to many things over the years; a casino, an ocean, a flock of birds. A couple of years ago it was compared to a swimming pool full of algae right here at zentrader. Those analogies are all very apt, but perhaps now more than ever the stock market is looking like a childish game of musical chairs.

Musical Chairs

musical chairsImagine a group of children playing a friendly game of musical chairs. Whatever the number of children, there are enough chairs to seat every child but one. An adult then plays some music as the children walk, skip or dance their way around the row of chairs.

For most, it is a lot of fun. Then, suddenly, the music stops. Anyone left standing when the music stops will be ostracized, thrown out of the game and left to watch silently from the sidelines. Almost immediately everyone finds a seat, except for one child.

The game is very similar to a stock market approaching a Bear market, including the propensity for the game to be rigged.

Unfair Games

In an ideal world, the game is not rigged; the adult controlling the music has no vested interest in the outcome of the game. In an ideal game all players have an equal chance of finding a seat when the music stops.

Now imagine that the adult controlling the music has some outside relationship with one or more of the players, for example a teacher running the music while the teacher’s pet is one of the players. It doesn’t take too much manipulation for the (more…)

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 -46

We consider the point at which Covered Call trading breaks even – returns zero profit and zero loss – to be (more…)

By Poly

This is an excerpt from this weekends 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%.

The entire trading community is once again extremely bearish on equities. Whenever we see extensive, relentless declines like those of the past two weeks, sentiment accelerates quickly to the downside, and this time was no exception. In fact, we’ve seen a rather remarkable breakdown in sentiment. It’s now plumbing depths that typically ring in significant turning points: Investor Cycle Lows, the end of corrections, and the end of bear markets.

Sentiment alone tells only half the picture, however. It can remain extremely elevated for long periods during bull markets, and extremely low for extended periods during bear markets. If equities are locked into the early stages of a protracted, bear market, it would be normal to have the level of negative sentiment we’re seeing today. That said, during the bull market of the past six years, each instance of negative sentiment at today’s level has spawned a significant rally.

 

1-17 Equity Sentiment

The current equity market decline has been extreme. The current Daily Cycle is now very oversold and, from a timing perspective, is also a little extended. Friday marked Day 42 of the current DC, well into the normal timing band for a DCL. A further low on Monday (in pre-market futures) or on Tuesday (at the regular market open) could mark the low of the current Daily Cycle. (more…)