Market
Summary
What has to be a serious
concern for the bulls is that most of the major indexes are selling off from
'triple-tops'. A triple-top is a pattern used by many technical analysts to
predict a price reversal when the market is trending upward. The pattern is
identified when prices create three peaks at virtually the same level (see
stock chart below). The price pullback off resistance at the third peak is
considered to be a sign that buyers have become exhausted. Trip-tops are
considered more difficult to overcome compared to other topping patterns,
requiring much more time and volume to reverse.
Also, most of the major
indexes have sliced through their 20 and 50-day moving averages setting up
prices to test the March/April lows – if stocks break below this level the
longer term trend converts from bullish to bearish. As mentioned in recent
articles, stocks are dropping and the current market pullback suggests that a
trend reversal similar to the previous two years is underway.
Investor
Analysis
Most
of the major stock indexes are breaking down and until prices reverse course
the near term trend is down.
Possible Strategy
Above are links to recent articles the described three
different trades that benefited from the current stock price pullback. Each of
the trades is profitable and investors who followed the suggestions should
close out these successful trades ASAP as May options expire this week.
Investors who want to trade on a further downside price move
are considering a simple
strategy to profit from the S&P 500's possible move lower. For example,
buying a SPY ETF (Exchange Traded Fund) June expiration put option – SPY
represents S&P 500 Index. Purchasing the $133 strike price put would cost $3.00
per share (based on yesterday's close, but would generate gains the further
S&P 500 dropped below $133 anytime prior to June 15th. For an explanation on the basics of option trading and
description of how trade is set up go to http://www.theoptionplayer.com/strategies/
By Gregory Clay
