Market Summary
Stocks have been performing well considering the spate of recent gloomy economic data; this would tend to support a continued bullish move. Second quarter earnings season kicks off next week and it will be important for companies to exceed diminished expectations to keep stock prices aloft. And of course, eyes will be on Europe as Euro-zone finance officials meet on Monday to figure out the details of the deal agreed to at the European Union summit last month. Also, if next week's Producer Price Index (PPI) and consumer sentiment numbers come in weak that will probably get market watchers thinking the door is opening wider for more quantitative easing (QE3) from the Fed.

The July 1st Couch Potato mentioned "...If the S&P 500 Index pushes higher the P&F chart will flash a 'buy' signal as the current uptrend column will exceed the previous column of X's..." The column of X's on the far right of the updated chart below is flashing the buy signal mentioned last week – the '7' at the top of the column signifies the start of the month of July and is substituted for one of the X's. Also note the comment in the chart "P&F Pattern Double Top Breakout"

The July 1st article also stated "...Both the DOW and S&P 500 are back at the 61.8% Fibonacci retracement of the May high to June low, the point where stocks faltered last week. Stocks are trying to break higher, but until this happens the trend is still range-bound trading...Traders have moved from mostly buying puts to hedge against a market drop to acquiring calls anticipating follow through on the recent price move...this week stocks returned to the highs as the AAII survey is again overly bearish..."

As confirmed in the chart above and charts displayed below, stocks moved higher and most of the major equity indexes surged through the top of their ranges. However, at the end of the week prices pulled back and right now the question is whether this is a 'failed' breakout or simply a consolidation before prices go higher? Another possibility is more range-bound trading. Traders started buying more put contracts last week and the updated AAII survey below indicates retail investors are now basically equally bearish, bullish and neutral. Considering that the current market mood is headline driven, with earnings announcements starting next week, probably the best bet is to expect stocks prices to vacillate up and down.

SPY Position Update
SPY closed at $135.49 on Friday – the July position is approx. $1,100 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) turned neutral (dee SPY chart)
Moving Average Convergence/Divergence (MACD) is bullish (see SPY chart)

The June 27th Couch Potato published a July expiration SPY bear call spread
The call spread is approx. $200 in the black (see tables below)
$138 strike price short call delta is .2540 (75% probability this position will be profitable)

The June 25th Couch Potato published a July expiration SPY bull put spread
On July 5th we suggested closing out the put spread for an approx. $900 gain (see tables below)

SPY Risk Analysis
As mentioned above, we suggested closing out the SPY put spread because the exit rule was triggered. Therefore, the only risk is the SPY ETF moving back toward recent highs and threatening the $138 strike price short call.

TLT Position Update ---------------------------------------------------------
TLT closed at $127.06 on Friday – the July position is approx $1,500 in the black
TLT is priced ABOVE its current 14-day EMA (see TLT chart down below)
TLT is trading ABOVE its 20-day Bollinger Band SMA (see TLT chart)
TLT is priced ABOVE its 50-day simple moving average (see TLT chart)
TLT is ABOVE its 200-day simple moving average (see TLT chart)
Relative Strength Indicator (RSI) is neutral (see TLT chart)
Moving Average Convergence/Divergence (MACD) is neutral (see TLT chart)

The June 21st Couch Potato published a July expiration month TLT bear call spread
The call spread is approx. $500 in the black (see tables below)
$131 strike price short call delta is .1479 (85% probability this position will be profitable)

The June 21st Couch Potato published a July expiration month TLT bull put spread
The put spread is approx. $900 in the black (see tables below)
$122 strike price short put delta is -.0848 (92% probability this position will be profitable)

TLT Risk Analysis
The TLT price is basically equidistant between the short call and put strikes and trading in a tight range. At this point there is no significant differentiation in the risk between the call and put spreads.

GLD Position Update ---------------------------------------------------------
GLD closed at $153.71 on Friday – the July position is approx. $700 in the black
GLD is priced BELOW its current 14-day EMA (see GLD chart down below)
GLD is trading BELOW its 20-day Bollinger Band SMA (see GLD chart)
GLD is priced BELOW its 50-day simple moving average (see GLD chart)
GLD is well BELOW its 200-day simple moving average (see GLD chart)
Relative Strength Indicator (RSI) is neutral (see GLD chart)
Moving Average Convergence/Divergence (MACD) is neutral (see GLD chart)

The June 27th Couch Potato published a July expiration GLD put spread
The put spread is approx. $700 in the black (see tables below)
$145 strike price short put delta is -.0901 (91% probability this position will be profitable)

GLD Risk Analysis
We did not have the opportunity to execute a GLD call spread, therefore the risk is gold prices crashing and threatening the $145 strike price short put.

Exit Plan
Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread. However, if it is a few days prior to the expiration date, we may be able to hold out for a .05 bid.

If one of our short strikes is penetrated (closing price above our short call or below the short put) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.

Exiting these positions prior to expiration we will probably “leg out” of each trade by first unwinding either the bear call spread or the bull put spread; and close out the other side of the spread as a separate order. The timing associated with closing out each side of the credit spreads is dependent on following our Exit Rules described above.

Final Comment
The July 1st Couch Potato Final Comment mentioned "... stocks strong quarterly finish notwithstanding, until we get a confirmed breakout most of the major indexes remain range bound..." As indicated in the updated S&P 500 Index weekly Heikin-Ashi chart below, the index finally poked through the top of the recent trading range and trended higher. Stock prices stalled at the end of the week, when traders return for a full week of trading the question is, will we get upside follow through or will the recent high prices prove to be just a false breakout?

Happy Trading

Gregory Clay

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.