Schaeffesresearch.com: “Technical speed bumps remain overhead, and headline risks linger, suggesting hedging is still a prudent strategy. But a breakout above resistance levels could be very rewarding for bulls, as short-covering activity and an abundance of sideline cash could provide the fuel to drive equities during a seasonal period that favors the bulls.”
MID (892.06): is right under the 900 resistance. “The 900 area has been a major speed bump, as this round-number region marked a peak in 2007, and 907 is the index’s year-to-date breakeven. The good news is that pullbacks from this resistance area have been modest, with the MID finding support in the 850-860 zone — which marked a peak ahead of the 2010 “flash crash” and brief tops in November 2010 and August/September 2011.”
SPX (1263): 1257-1260 is the area to watch, “the SPX continues to struggle in the 1,257-1,260 area, which coincides with its 2011 breakeven, its lows in March and June, and a 61.8% retracement of the calendar-year high and lows.”
The COMP (2678.75): 2652 is this year’s break-even point.
VIX (30.04): 24, 30 and 36 are critical numbers. Speaking of the VIX, we find it interesting that the late-October low in the 24 area was half the August peak at 48, while recent peaks on Nov. 1 and Nov. 9 at the 36 area marked a 50% advance from the trough of 24. So, as we said a few weeks ago, not only is VIX 30 significant, but so are VIX 24 and 36 as the market continues to bounce around critical technical levels. Therefore, if the VIX moves below 30, we would view this as an acceptable level at which you can purchase your portfolio insurance to help ride out any sharp, overnight declines.
Option (monthly) expiration week: the markets tend to be more volatile in expiring weeks. SPX 1240 and 1250 may provide support, due to heavy put open interest.
My trade: the last week’s market retreat provided me some opportunities to catch up with the short positions that I started in early October (in hind sight, that was a mistake. I admitted that I normally would flourish when markets panic. But the late September and early October market movement even spooked me into selling calls at very low strikes. I have been trying to unwind these short positions now). Going forward, I’ll continue to re-position my portfolio towards neutral. With most of my short calls deep ITM, I am not worried about the markets going down. It’s the rapid upward movement that will add pressure (margin call) on my portfolio before my short positions are completely corrected.
