A Few Random Thoughts
Before I get to the nitty-gritty I want to discuss a few random thoughts.
It’s been twelve days of range-bound trading for the S&P 500 (SPY). The benchmark ETF has been stuck between $140 and $142.50, but the journey through limbo land could be over soon enough.
The march into a short-term overbought today could be the last gasp for the bulls. The bears have been salivating waiting for the opportunity to push this market and the pot odds say its a go. The move since November 16th has finally extended itself so the odds are heavily weighted towards the bearish side.
If you had employed a few out-of-the-money bear call spreads over the past few weeks you should be in very good shape right now. A high-probability spread would have created a large margin for error just in case the bulls manage one push higher, but any advance over the next few days should be short-lived.
The Dow (DIA) and Russell 2000 (IWM) are officially in a short-term very overbought state with 9 other of the highly-liquid ETFs I follow. The S&P (SPY) has also joined the ranks of overbought which leaves only the tech-heavy Nasdaq 100 (QQQ) in a short-term neutral state.