MyTradingBlog

• Bernie Schaeffer’s montly Option Advisory Comment is my must read.  You can find this month’s here.  In summary, he is bullish for the remainder of this year.
• Monday Morning Outlook, and Chartadvisor.com.
• My advice: Monday’s market drop may be a good opportunity to start getting into the market, if you have been sitting on the sideline.  Again, the strategy that I prefer is covered call, with at the money or in the money strikes.

The markets have risen sharply during the last week, essentially erasing all the loss suffered during the previous 2 months or so.  The major indexes, as such, have reached the all time high of 2011.  It’s natural that a profit taking, or pullback is in store.  Markets never go a straight-line in one direction.  Plus this week is the July option expiration week and normally such a week displays more volatility.

• Schaeffersresearch.com and ChartAdvisor.com:

Both these 2 sites show hopeful signs in the market, while maintaining the inherent existing risks.  The message is that the market bearish sentiment is much more pronounced than the degree of the pull back in the market place.  This sets the stage of a market turn around.

• VIX: 21.1.  High

I’d still take a cautious approach to this market.  It is simply too volatile.  Although being oversold, but an oversold market can always get more oversold.  The approach I’ll take is covered call.

1. ChartAdvisor.com: “The markets continue to deteriorate, and while a bounce is likely soon, the markets can always become more oversold first…These are the markets that separate the traders who are consistently profitable from the revolving door of amateur traders. Undisciplined traders simply get eaten alive in this market.”  Interpretation: don’t start any new positions.  Stick to your trading principles.
2. Schaeffersresearch.com: More or less the same as ChartAdvisor.com.
3. Vix: 21.85, above all the 20, 50 and 200 day MVA.  However, VIX was as high as 35.32 in May 2010, and almost 30 in March 2011.  So there is room for more volatility.
4. Major market indexes: DJI and SP500 are all just above their 200 day SMA, whereas NASDAQ has already broke below 200 SMA.   The markets are at a critical juncture at this point.
5. Uncertain market moving factors: other than the Greek factor (Alan Greenspan thinks Greece will very likely become insolvent), the US debt ceiling is another major problem.  Obama and Boehner golfing together is a good sign that 2 parties are talking, at least).
6. What am I going to do?  Be safe than sorry.  Playing it safe.

While the markets are very oversold and technical indicators all point to an increasingly likelihood of a rebound, an oversold market can always get more oversold.