By Sell Puts
The price action yesterday after we topped out around 118.05 on the SPY is very much in line with pasts sessions where year highs were put in.
Falling off this level in my opinion is healthy, traders are taking profits. I for one felt the triple digit gains around noon were a bit to rich. Apparently the street felt the same. Now we must wait and see if the market collects itself and climbs back up testing 118 SPY, 1170 ES...
I will not lie the veracity of the selling coming off 118 caught me by surprise, sometimes this is good for a trader. When the market throws you a fresh curve ball it keeps you on your toes. If you become comfortable with the market you may miss an opportunity or let a loss grow larger than your trading plan allows. The best traders are always ready for anything, each of their trades have multiple contingency plans; IE if the market does this, my position will react this way, thus i must adjust the position in this way etc etc. Efficient, correct decision making is learned through experience. So get crackin'.
IF you take a look at the VIX chart above, focusing on the blue circles, you will notice a very predictable pattern, which is; spike up followed by sharp selling into oversold RED territory, then a beige candle sparks a move up towards the downtrend line. This pattern is fairly reliable, thus if we follow this pattern a VIX spike into the 20 area is not completely crazy. This would allow for the market to come in, unwinding a lot of oscillators and overbought indicators.
Going into the weekend i do not think we will see heavy selling, look for more low volume moves.. As of this writing the futures are green, though barely. I still believe this market is strong despite what is going on with the dollar. The UUP today really saw a nice moving coming off yesterdays 1.3% up move. Options were not very active in the ETF though the media chatter was very bullish dollar, this is always good to hear. Most options traders betting on a dollar rise positioned themselves long ago, once the media starts talking about it the party has already started.
