Market Summary
All systems are 'Go' for the stock market as prices across the board continued to climb higher as more buyers are coming off the sidelines and bidding up prices. We are in an election year and clearly this administration is desperately trying to do everything possible to stimulate the economy (driving the market even higher). Then there is the so called 'January Barometer where the notion is whenever the stock market rises in January it should be expected to finish the year higher. According to the Stock Traders Almanac the January Barometer has a 95% accuracy rate when the S&P 500 is positive for the January. The SPY is an exchange traded fund (ETF) that represents the S&P 500 stock index. The S&P 500 gained 4.4% or 54.81 point in the month, its largest January point increase on record.
As confirmed in the daily SPY chart directly below, most of the major stock indexes are at or exceeded their multi-year highs from last summer. The NASDAQ is actually at an 11 year high bringing back memories of the last tech bubble. Stocks may be taking a breather and consolidating gains generated over the past month or so. This is generally considered a bullish sign as stock prices usually continue in the direction of the trend after consolidating.
Investor Analysis
As mentioned above, stocks are in a strong bullish trend and the major stock indexes had huge gains in January and traders appear primed to move prices higher.
Possible Strategy
The January 31st Investor Report said "...As the bullish move continues, some investors are considering debit spread strategies to profit from the S&P 500's possible move higher. For example, trading a SPY February option expiration long 131, short 134 debit spread would cost $1.30 (based on yesterday's close – buy the 131 @2.00 and sell the 134 for .70), but would generate $1.70 profit if the SPY rose above 134 prior to February 17th (calculated as 134 minus 131 = $3.00 credit, less the $1.30 debit to buy the spread)..." As expected, stock prices moved higher and the value of suggested option trade increased to the maximum profit. Now would be an opportune time to close out this trade for the $1.70 per share profit. Sign up for the http://blog.theoptiontrader.com for additional option trading strategies
By Gregory Clay
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