The bulls and bears appear to be engaged in a tug-of-war centered on the major equity indexes near term resistance levels. Note in the SPY 30 min. chart below how every time the price approached the $127 resistance, sellers stepped in and pushed prices back down. However, at this point the bulls are winning the skirmishes as the bears have not been able to gain full control. When prices start to pull back, the bulls step in to buy and squeeze the price action back up towards resistance. Also, note in SPY daily chart down below how it is currently priced close to its 200-day SMA which is acting like a magnet and keeping the index from going much higher or lower than this level.
Next week might be interesting as there will be a lot of headline news and don't be surprised if we get a trend change (either up or down). Some of the data scheduled to be reported is business inventories on Tuesday followed by import and export prices on Wednesday. On Thursday we get jobless claims, producer prices, industrial production and the Philly Fed survey followed by the Consumer Price Index on Friday. Also, next week there is a Federal Reserve meeting and the week ends with triple-witching day on Friday â€“ the end-of-quarter simultaneous expiration of stock index future, stock index options and stock options for December. All bets are off concerning where prices might end the week as we should expect high volatility heavy trading volume.
SPY Position Update
SPY closed at $126.05 on Friday â€“ the December position is approx. $1,700 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)
SPY is ABOVE its 50-day simple moving average (see SPY chart)
SPY is moved 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 November 30th Couch Potato published a December expiration SPY bear call spread
This call spread is approx. $350 in the black (see tables below)
$129 strike price short call delta is .2140 (79% probability this position will be profitable)
The November 14th Couch Potato published a December expiration SPY bull put spread
This put spread is approx. $1,400 in the black (see tables below)
$116 strike price short put delta is -.0359 (96% probability this position will be profitable)
The December 5th Couch Potato published a December Quarterly expiration SPY iron condor (see tables below)
SPY Risk Analysis
The risk is the SPY price trends higher and penetrates the current resistance level and threatens the $129 strike price short call prior to Friday expiration.
As mentioned above, the regular December options expire this week and at this point we need closely monitor our SPY bear call spread. The index has been bouncing off near term resistance and if it breaks through over the next few days we will need to make decision about what to do with our short call. Also, we will probably close out the bull put spread over the next few days at it is close to the exit rule price.
As mentioned above, there is lot going on next week with a plethora of economic reports due, the Fed meeting, and of course, triple-witching option expiration on Friday. We should expect higher volatility, which means that we will closely monitor our December options that expire on Friday and be prepared to immediately close out positions if the exit rule(s) are activated. As mentioned above in the Risk Analysis section, we need to especially pay close attention to the SPY bear call spread short strike price.
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.