In nine trading sessions the S&P 500 (SPY) has advanced over 14%. The tech-heavy QQQ – over 16%.
The market’s performance heading into this past week was impressive; now it's historic. Just when everyone thought the market was about to break support last Tuesday (10/4) the market proceeded to bounce off those levels and hasn’t looked back. Indeed it has been one of the strongest two week rallies in market history. In fact, we have only seen this type of move 5 other times since 1928.
The rally has resulted in the Dow turning positive for the year and the S&P 500 (SPY) turning in its best week in more than two years.
As for the current technical picture, the all of the major indices and most sectors are in a short-term "very overbought" state as we head into the week of options expiration. Not only are the major benchmarks in one of the most short-term overbought states that we have seen in quite some time, but we are now hitting strong overhead resistance with two unclosed gaps directly underneath. Combine all of the aforementioned and you can quickly see why the risk/reward scenario leans heavily towards a short-term reprieve next week.
I placed a vertical bear call spread near the top last week and will place another in the Theta Driver Options Strategy on Monday if we open higher. I am perfectly comfortable using credit spreads, more specifically bear call spreads to take advantage of the current state of the major indices. This is how I trade the Theta Driver Strategy.
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