It was easy to get dizzy during the first full trading week of 2015, who will win the battle?
The roller coaster was set at warp speed for investors this past week. The SPX chart illustrates how wild the ride was:
SPX 6 month chart
The high/low ranges for each day of the week were over 20 points, so it is very unclear as to the market direction over the near-term. Friday, at the low of the day, SPX was outside the recommended entry range for the weekly Iron Condor. Right after I posted the "no entry" article the market did rebound as I suspected. However, as I wrote, I didn't want to risk live capital in a short term trade with the volatility we saw last week. More aggressive traders may feel the water is "safe" for a weekly trade entry, but my conservative trading style makes me feel more comfortable keeping cash as my short term position.
The index closed Friday at 2045, losing 25 points for the week or 1.2%.
The volatility index VIX was just as choppy last week. The index reached the high of the week on Tuesday of almost 23, the dropped to close near the week's low at 17.55.
VIX 6 month chart
January is sometimes said to be the mirror for the whole year, so we will hope that things calm down in the near future to resume our regular weekly trading plan. The first week of the earnings season kicks in next week, and that could bring some additional volatility to the table.
The year is still young, so there is plenty of time to re-instate this weekly trade when the time is right.
Just before the Holidays I posted an article on a new trade that I will put into the "test kitchen" this year. After paper trading it for a bit of time and analyzing the results, this new strategy will be incorporated into the live trade plan if the results are favorable. The trade is in-between a weekly and a monthly; it is an SPX Iron Butterfly opened about 14 - 15 days prior to expiration.
The details of the trade were published on December 4, 2014, and can be found here: Link to Articles
The trade entry is based on the 14-Day ATR (Average True Range) being in the low end of the range. I have added this study to the SPX chart posted above. The ATR is beginning to trend down slightly, but still way above the low-end of the range at about 10 points. Patience is in order for this trade entry, but I am hopeful we will begin the testing sometime this month.
The details of the proposed "Test Kitchen" trade were posted in an article dated December 4, 2014, and can be found here: : Link to Articles
For those who have followed Couch Potato Newsletter over the last year or so will be familiar with my conservative trading style. I believe that this tight style of risk management improves the probabilities of overall annual success, particularly with shorter term trades. For those of you who may have just started your subscription, I ask for patience as we wait for a clearer signal that the market may be reasonable safe to enter weekly trades.
Next week brings a fair amount of economic news; a recap is below:
12:40 pm Fed Dennis Lockhart speaks
8:00 am Fed Charles Plosser speaks
5:00 pm Fed Narayana Kocherlakota speaks
8:30 am Retail Sales
8:30 am Import and Export Prices
10:00 am Business Inventories
10:30 am EIA Petroleum Status Report
2:00 pm Beige Book
8:30 am Jobless Claims
8:30 am PPI-FD
8:30 am Empire State Manufacturing Survey
10:00 am Philadelphia Fed Survey
8:30 am Consumer Price Index
9:15 am Industrial Production
9:55 am Consumer Sentiment
Next week is the planned entry for the SPY Iron Condor for the February monthly cycle. Monday will be 39 days to expiration; so we will plan to enter the position sometime next depending on market conditions and available credit. For those unfamiliar with the trade, guidelines were last posted on September 10, 2013, and the article can be found at this link: Link to Articles
Position updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,