Market Summary
Cheap money from various forms of quantitative easing programs appears to be the primary driving force propping up the market. The Federal Reserve and their European Central Bank counterpart are expected to continue to flood the world with more paper money in an attempt to both stimulate the economy and pay off increasing debt loads. The easy money is being used to speculate on riskier assets like stocks and commodities. The central banks appear determined to make sure there is enough easy money floating through the financial markets to keep stocks in bull mode for quite awhile.
Investor Analysis
It looks likely that stock prices should push higher in the near term. Looking at the SPY weekly chart above will confirm that since the beginning of the year, stocks have 'bulled' higher with nary a pause. Prices have consolidated a bit over the past few weeks, but from a technical perspective this should be considered bullish. Price consolidation usually helps alleviate overbought or oversold conditions, and prices are usually expected to move in the direction of the current trend after the consolidation ends.
Possible Strategy
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 March option expiration long 136, short 139 debit spread would cost $1.60 per share (based on yesterday's close – buy the 136 @2.40 and sell the 139 for .80), but would generate $1.40 profit if the SPY rose above $139 prior to March 16th (calculated as 134 minus 131 = $3.00 credit, less the $1.60 debit to buy the spread) For an explanation on the basics of option trading go to http://www.theoptionplayer.com/option-basics/
By Gregory Clay
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