By Astrology Traders

The following is an excerpt from this weekend’s Astrology Traders update.

Market Trend-Next Bullish Move

The markets started off last week with volatility in line with my projection for a big Up and Down move.  China manipulated their currency the week prior, not in alignment with the US banks apparently, and the city of Tianjin China was likely bombed as a result.  Video from residents describe what looked like a nuclear explosion.  A similar theme to the earthquake and tsunami at Fukushima Japan.

The markets flirted with a Bearish confirmation as a result.  Jeff’s short term technical indicator for the Nasdaq held on by a thin cushion of support, the only technical indicator that had not flipped Bearish over the last several weeks.  Chris has illustrated this week with his chart the same stressed line of support.  By the end of the week the markets had settled down with the volatility and in my view look to be setting up for the Bullish move I have predicted.  There is potential for a new high and a reversal up could occur quite quickly.

Chris’s Options Corner

Current Options Positions
$SPY – We booked a $1200 profit on a Naked Call position in SPY this past week. Then, in order to position ourselves for a potential rally in stocks, we opened Naked Puts on $SPY. Since Put options decrease in value when stocks rise, being short these options allows us to profit from a rally in the S&P. Additionally, these options tend to lose value just from the passage of time, regardless of whether stocks rise, so we also have time on our side. If the S&P does rally, it would likely take the Nasdaq along for the ride, so this position on SPY is also intended to counter the effects of short positions in our portfolio, particularly the short QQQ position. Profits on the SPY Naked Puts should exceed losses on the QQQ short.

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The #LSSI or S&P 500 Long Straddle/Strangle Index is a measurement of option performance that is associated with the element of surprise among traders. Traders can be surprised in two ways:

  1. either stock prices move much further than many thought was possible, or
  2. stock prices don’t move at all when many thought they would move

When the #LSSI is above +4%, traders tend to be surprised how fast stocks have moved, and their surprise causes them to anticipate a reversal of the trend. When lots of traders reverse their positions in anticipation of a reversal, stock prices tend to reverse, as if in a self-fulfilling prophecy.

When the #LSSI is below -6% (as it was in recent weeks) traders tend to be surprised at how range-bound the market has become, causing them to anticipate a breakout. Thus, whenever stocks make a move, lots of traders position themselves in the direction of the move because they believe the breakout has finally arrived, in turn fueling a breakout from the previous range. The #LSSI, since it has been so low recently, suggests stock prices are prone to a major breakout in coming weeks. It could be a major rally to new highs or a major sell-off; the #LSSI does not predict the direction of the breakout, or whether the breakout will be short-lived or sustainable, only that it is a higher probability now and in the near future.

 

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