The June 26th Couch Potato mentioned "...The major indexes returned to the loss column making last week the seventh down week out of the last eight. The question is when is the current downdraft coming to and end and prices begin some sort of sustained recovery. Notice how the 20-day SMA (dotted purple line) recently became firm resistance and could actually be used as a quick and dirty downtrend line...As you can see in the charts below, prices have basically remained in a trading range for the past few weeks..."
what a difference a week makes, the market has gone from gloom and doom and wondering when prices will hit bottom to five consecutive days of gains culminating in the largest weekly advance in two years ahead of a holiday shortened week. All of the major indexes surged well over 5% for the week. Some market observers remain skeptical because trading volume is not higher, but the score still counts, the market does not provide a volume discount.
Already some pundits are suggesting an impending price pullback; of course this could happen just as sudden as prices jumped last week. The market does what it wants to do, but there does not appear to be a strong technical or fundamental rationale to bet on an immediate price drop. As noted in the charts below, the momentum indicators and oscillators associated with the major indexes have turned bullish, but are not yet overbought. Also, if you apply the technical analysis concept that old resistance, once penetrated, becomes new support, then the moving averages/trend lines should become price support levels. Quarterly earning announcements start in a few weeks and the most recent history has been that stock prices held up well as investors viewed the results positively. The price recovery provided relief to bullish put spreads as the seven week downtrend not only pressured the short positions, but there were limited opportunities to do bearish call spread to provide a hedge. If there is follow through on this week's price action then we can expect to have a chance to do both call spread and put spreads. Ideally, next week prices will stabilize at around the current level and we should have the opportunity to do our next trades.
SPY Position Update
SPY closed at $133.92 on Friday â€“ the overall June position closed approx. $1,300 in the black
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its 20-day Bollinger Band SMA (see SPY chart down below)
SPY is ABOVE its 50-day simple moving average (see SPY chart)
SPY is still ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is bullish (See SPY chart)
The May 16th Couch Potato published a June expiration month bull put spread
On June 15th the Couch Potato suggested closing out the entire put spread for an approx. $2,300 loss (see tables below)
The June 15th Couch Potato published a June End-of-Month Quarterly expiration month SPY bull put spread
On June 30th the adjusted put spread expired worthless at approx. $3,600 in the black (see tables below) <
SPY Risk Analysis
All of the current SPY positions are closed out.
DIA Position Update --------------------------------------------------------------
DIA closed at $125.58 on Friday - the July position is approx. $1,200 in the black
DIA is priced ABOVE its current 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its 20-day Bollinger Band SMA (see DIA chart down below)
DIA is ABOVE its 50-day simple moving average (see DIA chart)
DIA is still ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) is bullish (See DIA chart)
The June 14th Couch Potato published a July expiration month bull put spread
We are closing out the entire put spread for an approx. $1,200 gain. (See tables below)
DIA Risk Analysis
After closing out the DIA put spread we will have no July positions open.
We already closed out the SPY position for a gain. The exit rule for the DIA put spread is triggered and we can now close this trade for a profit.
As mentioned above, our quarterly SPY bull put spread expired worthless, therefore our trade adjustment worked out. Unless something catastrophic happens we should be able to immediately exit the DIA put spread with a nice profit. Next up is the analysis process to evaluate and prioritize potential opportunities for August expiration month credit spreads that comply with our trading plan.
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.