The superstorm Sarah tragedy literally brought the market to a standstill as trading was suspended at the beginning of the week. The major equity indexes basically ended the week where they began as some companies postponed earning reports and press releases. The only major price action for the week was on Friday as stocks opened with a huge gap higher on better-than-expected employment data. But prices quickly reversed and gave up those gains on nervousness ahead of the U.S. presidential election next week. The major price move was a drop commodities and precious metals as gold recorded a fourth consecutive weekly loss due to a favorable payroll report strengthening the U.S. dollar. A stronger dollar tends to pressure prices for dollar-denominated commodities such as gold since it makes them more expensive for holders of other currencies to buy. Another victim of a surging dollar is oil prices as demand evaporated in the aftermath of superstorm Sarah sending oil futures crashing.
The October 28th Couch Potato mentioned "...As indicated in the S&P 500 index P&F chart below the stock market is in a near term downtrend..." The column of 'O's on the far right of the updated chart below confirms stocks current short term downtrend. Also note that the S&P 500 index is approaching its longer term uptrend (blue) line. As it has done for the past year, there is a high probability the index price will bounce off the long term uptrend line to start a new trend higher (column of 'X's). The October 28th article also said "... If stocks hold up and don't fully correct over the next few weeks then it is reasonable to expect another upside move toward the end of November. After third-quarter earning season winds down, market prices will react to analysts' speculation about what the Fed will announce at the next FMOC meeting on December 11 â€“ 12. The Fed is expected to take action because 'Operation Twist' is scheduled to expire at the end of the year..." If the unexpected happens and the S&P crashes through the longer term uptrend line, look out below because the market will be in full blown correction mode.
The October 28th Couch Potato opined "... The major equity indexes have dropped below the lower level of their relatively narrow trading ranges that had been place for a few months...Prices may be stabilizing as traders have stepped in over the past week to buy the dips and prevent a correction. Over the next week or so we should know whether the current pause is merely giving the market an opportunity to absorb oversold conditions before continuing downward or if prices have established a new support level for a trading range..." The S&P 500 index 2-hour chart below signals a narrow trading range since earnings season began in earnest. The support and resistance lines are clearly defined as traders appear to be buying and selling as part of the year-end asset allocation strategy. Over the next few weeks as November options expire expect the price to break out of the narrow trading range â€“ the best bet is that stocks will recover to the upside back toward recent highs.
SPY Position Update -------------------------------------------------------------
SPY closed at $141.56 on Friday â€“ the November position is approx. $1,000 in the black
The October 17th Couch Potato published a November expiration SPY call spread
On October 23rd we suggested closing out the call spread for an approx. $900 gain (see tables below)
The October 11th Couch Potato published a November expiration SPY put spread
The put spread is approx. breakeven (see tables below)
$138 strike price short put delta is -.2416 (76% probability this position will be profitable)
SPY Risk Analysis
As mentioned above we closed out the SPY call spread, therefore the only risk is the S&P 500 index breaking through near term support and threatening our $138 strike price SPY short put.
TLT Position Update -------------------------------------------------------------
TLT closed at $122.26 on Friday â€“ the November position is approx. $1,700 in the black
The October 11th Couch Potato published a November expiration TLT call spread
The call spread is approx. $900 in the black (see tables below)
$128 strike price short call delta is .1550 (84% probability this position will be profitable)
The October 22nd Couch Potato published a November expiration TLT put spread
The put spread is approx. $800 in the black (see tables below)
$117 strike price short put delta is -.1151 (88% probability this position will be profitable)
TLT Risk Analysis
Treasury bond price trend turned down this week and if the trend continues it would threaten our $117 strike price short put.
GLD Position Update -----------------------------------------------------------
GLD closed at $162.60 on Friday â€“ the November position is approx. $3,500 in the red
The October 11th Couch Potato published a November expiration GLD put spread (see table below)
The put spread is approx. $3,500 in the red (see tables below)
$165 strike price short put delta is -.6851 (31% probability this position will be profitable)
GLD Risk Analysis
Gold prices crashed through near term support and triggered the exit rule for our $165 strike price short put. We expect to adjust this trade over the next few days.
As mentioned above the GLD short put exit rule has been triggered. We will evaluate trade adjustments as gold prices stabilize over the next day or so.
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.