The August 7th Couch Potato Market Summary mentioned "...The bulls appear to have more energy at this point, but the question is what will be the motivation to drive prices higher? Most of the S&P 500 companies have already reported earnings, the mostly positive reports is what has juiced up stocks for the few weeks. The recent tepid economic reports along with uncertainty in Washington appear to be keeping a lid on the near-tern upside..."
It is possible the best may be behind us as retailers typically close out the quarterly earnings reporting period and thus far the results are not very encouraging. The bulls may have run out of steam, especially if retail companies continue to report flat earnings and signal weak consumer spending.
The article also stated "... The major indexes are at their short term resistance levels, but until we get a confirmed break-out, we should expect that stocks will continue to trade range-bound. As we have been discussing, the ideal scenario for us is for stock prices to remain in a trading range..." Last weeks price pullback not withstanding, technically, stocks are not yet oversold. Unless there is a reversal next week, there is high probability of a further price decline. If this analysis is accurate this might suggest that we should expect continued range-bound trading. As reflected in our recent trading results, the range-bound trading is the ideal scenario for our trading strategy.
SPY Position Update
We closed out the August expiration month SPY bear call spread
SPY closed $108.31 on Friday
SPY is BELOW its current 14-day EMA (see SPY chart down below)
SPY is trading BELOW its 20-day Bollinger Band SMA (see SPY chart)
SPY is just BELOW its 50-day simple moving average (see SPY chart)
SPY is priced BELOW its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is neutral (See SPY chart)
Moving Average Convergence/Divergence (MACD) is turning down (See SPY chart)
SPY Bear Call Spread
The July 14th Couch Potato recommended an August expiration month call spread
We closed out the bear call spread for an approx. $1,400 profit (see tables below)
SPY Risk Analysis
We cashed out all of our August SPY contracts with gains
DIA Position Update
We closed out the August expiration month DIA Iron Condor
DIA closed at $103.35 on Friday
DIA is BELOW its current 14-day EMA (see DIA chart down below)
DIA is trading BELOW its 20-day Bollinger Band SMA (see DIA chart)
DIA is ABOVE its 50-day simple moving average (see DIA chart)
DIA is priced at its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is neutral (See DIA chart)
Moving Average Convergence/Divergence (MACD) is turning down (See DIA chart)
DIA Bear Call Spread
The July 8th Couch Potato recommended an August expiration month call spread
We closed out the bear call spread for an approx. $1,100 profit (see tables below)
DIA Bull Put Spread
The July 19th Couch Potato recommended an August expiration month put spread
We are closed out the bull put spread for an approx. $1,100 profit (see tables below)
DIA Risk Analysis
We cashed out all of our August DIA contracts with gains
As indicated above we were able to profitably exit all of our August credit spreads
The August 7th Couch Potato Final Comment mentioned "...The market mood really has not changed much over the past few weeks as we still do not have a solid price break-out above the recent trading range. The bulls are doing their best to hold up stock prices, but now that earnings season is ending, the question is what will be the impetus to drive stocks higher..." The market's response to this question thus far is less than encouraging. Now the obvious question is whether the recent price pullback will turn into something more substantial. August monthly options expire this week and we should find out if the 50-day SMA will hold up as support for the major stock indexes. Fortunately, we closed all of our August contracts with nice gains, therefore we can observe from the sidelines to see how the action plays out. Whatever stocks decide to do, the prudent course of action for us is to stick with our recent trading strategy â€“ initiate credit spreads when prices are near resistance and/or support. This plan has been working very well, and until the market tells us that we need to change, we will continue to ride the winning horse.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.