Expiration Window

I believe that the bias will be to the upside until June expiration. While we might not go straight up and there will be bumps along away I believe the trend will be higher. My reasons are as follows:
  • The market is very oversold on a 10 day basis and will soon be oversold on a 30 day basis.
  • There has been a lot of put buying in the past few weeks. Market players have adequate downside protection.
  • Rydex traders are positioned bearishly.
  • The VIX spiked to levels seen at previous major crisises, after which there was a market rebound. The one exception was the Fall of 2008.
  • We are starting to hear extreme downside targets and the bears are getting too loud.
Even if we are in a new bear market there will be rallies. The quality of the current rally will offer hints as to  the type of market we are in.

6 comments:

PJ said...

Support from established puts through the June expiration makes sense.

But I'm curious where you have been hearing the "extreme downside targets." I must have a limited selection of sites because every bear blog but one I visit is positioned long.

It may be I need to diversify the sites I visit ...

PJ said...

Here's an alternative scenario. The market opened last Thursday at 1093 and has spent nearly all its time since, but for two spikes down, between 1072 and 1093. Option buying switched from put-dominated last week to call-focused this week. We have begun to work off the oversold condition by chopping sideways.

We'll continue to test resistance at 1093, maybe make false breakouts above it, but the chop-sideways condition will be resolved either at the end of this week or next week by a resumption of the move down.

Not saying this is more probable than the argument for a pop into the mid-1100s, but it's one I need to account for in my trading. An up-move to 1170 will be retraced within a month or two, but once the bear resumes, down-moves will not be retraced.

Tsachy Mishal said...

The CBOE has been showing put buying and the end of day ISE readings have also been showing put buying although not to the extent of the CBOE.A little call buying after a long downtrend is not neccesarily a bad thing either. A long string of call buying is negative.

Tsachy Mishal said...

Pj,

Please dont take this personally because I used to be the exact same way as you. Regardless of who will be proven right this time, you seem too scared of missing the down move when you should be more scared of losing money.

Making the transition from sticking with my long term view to playing both sides of the market was the key to raising my performance to the point where I can do this full time.

I have the same long term bearish outlook as you. When I first made this transition I would cover all my shorts when the market became extreme. Slowly but surely I became confident enough to even play the long side.

PJ said...

Yes, thanks Tsachy, that's why I'm here. It will take me some time to gain confidence with shorter-term trades. If I argue it's in order to learn.

I don't think I'll ever get as short-term as you are, since I think I have an advantage from private economic models that are longer-term. So I'll probably just go to neutral when I'm expecting countermoves. But being neutral for countermoves, and in for trend moves, would be a big improvement to my results.

PJ said...

By the way, I do think I'm learning. I'm still in the baby steps phase but so far this move, all my short covering was below 1075 on S&P and all my re-acquired shorts were put on above 1085. I picked up about 3% on most of my securities.