The stock market correction in the final weeks of November culminated in the most recent low points for the major indexes at the end of that month. A sharp rebound ensued in the days immediately after the low prices and the major stock indexes have been trying break through near term resistance ever since. After recovering off the November lows the major indexes basically traded in a narrow range for the month of December. Note in the SPY chart below how stocks gapped up on the first trading day of this year, but the prices basically didn't budge after the opening day pop. A lot of market pundits had been predicting a 1,350 (and higher) S&P500 by the end of 2011, but that is proving to be a hard time coming. Since crashing to the 52-week lows this past October, stocks have been trading range bound with a bullish bias.
Stock prices will breakout (eventually), but the market still seems to be fixated with headline risk. Next week is the start of the 4th Quarter earnings cycle and we have to see whether investors' attention will divert away from Europe back to the U.S. fundamentals. Investors will probably want to hear about positive news on earnings and future guidance to move the major indexes much higher. What is interesting is that even though the market is leaning bullish, the bulls might be getting weary of trying to break through to the upside and one negative news event could send prices crashing. But what will probably hold prices up is the fact that we are already starting to hear murmurs about QE3. The most recent Fed meeting minutes revealed that several members are strongly in favor of more quantitative easing, if this begins to gain traction it might be the impetus that drives the next bullish trend.
SPY Position Update
SPY closed at $127.71 on Friday â€“ the January position closed with an approx. $1,200 gain
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 moved 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 bullish (See SPY chart)
The December 15th Couch Potato published a January expiration SPY bull put spread
On January 4th we suggested closing out the January put spread for an approx. $1,200 gain (see tables below)
SPY Risk Analysis
We did not get an acceptable price on the January call spread call spread that we have been attempting to open â€“ and since the January put spread is closed, there is no money on the table.
As mentioned above, we have already closed out all of our open positions.
Over the past few weeks, every time we have published a January SPY call spread it was not available at an acceptable price in subsequent days. If subscribers kept the trade in play after the original publication, they were probably able to get the trade when it was available since they avoided waiting on an update. Note in the weekly SPY Heikin-Ashi chart below how the index remains in the tight trading range from the past few months. From the Couch Potato perspective, this is the ideal trading environment for our market neutral trades. Directional traders are probably having a difficult time generating consistent profits (depending on the market and whether they are daytrading). But we still have relatively high volatility, so even though the current trend is our friend, it is important to make sure the trade is set up properly. This is important because if/when prices break out of the trading range you want to be able to easily adjust the trade if necessary.
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.