The March 6th Couch Potato commented on "...The major stock indexes basically finished flat this week as prices appear to be consolidating at recent highs. Technically, this consolidation is considered a bullish sign as prices are expected to continue in the direction of the current trend..."
As evidenced in the 60 min. SPY Heikin-Ashi chart below, for the past several weeks the major indexes are having difficulty breaching recent highs which appears to be serving as firm near-term resistance. Remember that Heikin-Ashi charts are designed to smooth out price fluctuations to display the prevailing trend. As noted, the major stock indexes pulled back at the beginning of the month, recovered back to resistance and now prices are stagnating at the current resistance level.
The major indexes near-term trend should be considered moderately bullish with recent price action signaling possible range-bound trading. Stocks quick recovery from the price pullback at the beginning of the week pretty much confirmed the bulls are still in control. The market will probably continue to plod along and inch higher as money managers continue to go through the process of sector rotation. As we have noted in recent articles, investors are taking advantage of price pullbacks to buy into the current leading sectors like technology and financial stocks. Sector rotation is considered a very important ingredient in pushing stocks higher.
The S&P 500 index has more than doubled since prices where at the 12-year low and bear market bottom three years ago - on March 9, 2009 the index was at 676.53. The economy is improving and corporate profits are booming. But this is not enough to entice the small retail investor back into the market. Trading volumes remain at relatively low levels and small investors are taking advantage of recent highs to pull money from mutual funds that invest in U.S. stocks. Stock investing is dominated by institutional players more than ever as retail investors appear to be shell shocked by the 2008 market crash and extremely high volatility experienced in 2011. But what may be a bigger issue with retail investors is the persistently high unemployment level. The White House and some gung ho business analysts may be touting the recent employment numbers as a drastically improved job market, but the reality is that the economy is not producing anywhere near enough jobs to absorb all those available and willing to work. With retail investors sitting on the sidelines, the Feds easy money policy and money managers sitting on tons of cash is what will drive the demand to push stock prices higher.
SPY Position Update
SPY closed at $137.57 on Friday â€“ the March 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 priced ABOVE its 50-day simple moving average (see SPY chart)
SPY is 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 neutral (See SPY chart)
The February 13th Couch Potato published a March expiration SPY bear call spread
On March 6th we suggested immediately closing out the call spread for an approx. $1,300 gain (see tables below)
The February 13th Couch Potato published a March expiration SPY bull put spread
On March 8th we suggested closing out the put spread for an approx. $450 gain (see tables below)
SPY Risk Analysis
The March 7th Couch Potato published a SPY March Quarterly put spread setup. However prices gapped higher at the start of trading the following morning and the published trade was not available as the gap was not filled. As displayed above we suggested immediately closing out all the regular March contracts, therefore at this point we have no money at risk.
DIA Position Update
DIA closed at $129.15 on Friday â€“ the March 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)
DIA is priced ABOVE its 50-day simple moving average (see DIA chart)
DIA is 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 neutral (See DIA chart)
The February 22nd Couch Potato published a March expiration DIA bear call spread
On March 6th we suggested immediately closing out the call spread for an approx. $1,200 gain (see tables below)
DIA Risk Analysis
As indicated above we suggested immediately closing out the March expiration DIA call spread and we therefore have trades on the table.
The Couch Potato suggested closing trades to exit all of our March positions. And as mentioned above, the quarterly expiration SPY trade published March 7th article was not available the following day(s), therefore we currently have no contracts in play.
Next week is quadruple witching expiration when stock index futures, stock index options, stock options, and single stock options all expire on Friday. Market participants should look to resolve open March positions whenever there is an opportunity as there may be increased volatility next week as investors seek to reposition expiring contracts. Also, the Couch Potato will be evaluating setups for a potential end-of-March quarterly expiration trade.
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.