Strong resistance at Nasdaq 2800 is still in play but initial support across all the indexes is also firm.
This is not exactly my preferred chart pattern to add new plays with a week long failure at resistance but I believe it was due in part to the pending government shutdown. Investors don't like uncertainty and with our own problems and those overseas we definitely had plenty of uncertainty.
The budget compromise appears to have reassured the markets with the S&P futures up 4.50 early Sunday night. The dollar is up slightly and oil is flat. I am anticipating a decline in oil prices so we need to avoid any energy stocks.
There are a lot of charts that look like the one below with a pause in the rally last week at clear resistance points. I don't know how confident I am about the broader market continuing higher with all this individual resistance.
If the overnight futures hold we could see the S&P return to the top of its range on Monday while we wait for the earnings cycle to begin. The market chart is not bullish but there was a real lack of positive news to move the market last week. It was the week after quarter end and incoming cash flows had waned. It is also only a week until tax payment day and many traders could be liquidating positions to pay the taxman. Most investors wait until the last minute to make those decisions.
We were stopped on ATI and FLR on Thursday. We did not have a good week but at least the plays in positive territory more than offset the ones in negative territory.
Hopefully we can get a bounce on Monday that take us out of breakdown danger and then earnings excitement keeps us closer to resistance than support.
Current Position Changes
ATI - Allegheny Technologies (Stopped)
ATI was stopped at $65.75 on Thursday with the option trading at $2.30 giving us a loss of -65 cents.
FLR - Fluor Industries (Stopped)
FLR was stopped at $71.65 on Thursday with the option trading at $5.30 for loss of $1.00.
VMW - WMWare $82.79 (Short Put)
VMW rallied from support at $78 for the second time since late March and succeeded in breaking out to a three week high at $83 on Friday. That could be the incentive traders need to move back into this stock.
I am going to recommend the $75 strike for less risk but aggressive traders may want to move up to the $77.50 strike for a little more premium depending on how the market opens on Monday.
Do not enter this position unless VMW and S&P-500 are both positive.
Sell Short May $75 Put, currently $1.65, stop $79.75, no target.
SINA - SINA.com $119.35 (Short Put)
SINA was up last week on rumors Facebook was going to enter China with the help of a Chinese partner and that was supposedly SINA.com. Internet is exploding in China as the income level rises and technology spreads out from the major population centers. Sina has had a good run but there is nothing to prevent them from moving higher.
I am picking a strike well out of the money to prevent any short term dip from inflating the premiums.
Do not enter this position unless SINA and S&P-500 are both positive.
Sell short SINA May $100 Put, currently $2.15, stop $109.50, no target.
Chart of SINA
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There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.
Here is the most common margin calculation for naked puts.
100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))
For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)