Market Summary
Take a look at the SPY daily Heikin-Ashi chart below and notice how the index has been trading in a tight price range the past few weeks. The S&P 500 index is down approx. 2% for the year and would need to rise to around 1,257 to finish higher for the year. With less than two weeks left in the trading year we might be starting to see a Santa Claus rally to the upside as some money managers attempt to push the prices up so that the S&P 500 index at least ends the year flat. Trading volume is typically lighter this time of year as traders start checking out for year vacation. Since there will be fewer participants and less trading volume, it becomes easier for traders to push to push stocks higher.
Investor Analysis
The other major stock indexes (DOW and NASDAQ) are already up slightly for the year. And as mentioned above, traders appear to be motivated to push the S&P500 index into the black to join the other major indexes. There is still a lot of money on the sidelines, plus some investors have bearish positions. Today's big move was classic short squeeze that forced traders to buy back short positions driving prices even higher. As more sideline money enters the market it won't take much for prices to get back to recent highs.
Possible Strategy
As the bullish move continues, some investors are considering debit spread strategies to profit from the S&P 500's possible move to the top of the recent trading range ($129). For example, trading a SPY January option expiration long 124, short 129 debit spread would cost $2.00 (based on yesterday's close – buy the 124 @3.00 and sell the 129 for 1.00), but would gain $3.00 if the SPY rose above 129 prior to January 20th (calculated as 129 minus 124 = $5.00 credit, less the $2.00 debit to buy the spread)
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By Gregory Clay
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