BULLISH SIGN (short) in mid of BEAR MARKET ?

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This article is a continuation of what I wrote two weeks ago about SPY (spider). As we know that S&P 500 is the pulse of overall market direction/condition, it is worth to see its price action. For the consistency of analysis, I also used two past weeks data. Despite price broke down from the rising wedge (see April 9,2008 article), price was able to rally again to SPY 139 due to good 1^st Q earnings from leading companies. 30 dma has more conviction on the upward move. Despite it is still a process to cross the 50 dma, but the angle upward movement was getting steeper. Double bottom presence was replaced by the forming reverse Head and Shoulder pattern. Once the price have technical break out of SPY 140, we will have more conviction on this sign.

I still believe SPY 140 is still a strong resistance line. However, price has tested 200 dma and this made this resistance line getting weaker and weaker. SPY 145 will be the next resistance point should price break out SPY 140. It would be hard to surpass this line since we are still on Bear Market and market needs more time to recover.

For Neutral Options Player, watch out for the break-out SPY 140. You may reduce the short (bearish) position should technical show this conviction. I will be more comfortable having neutral to bullish sentiment on this short time period. But......always look for price action..... (as quoted by Brian Shannon).

A Heaven for Market Neutral Options Players?

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“I was quite doubt that market will surpass SPY 140 level in the short time as subprime mortgage problem is still big…..” That was my comment in an article that I wrote on March 25, 2008.

The followings are what I see from the technical point of view now:

Despite many bad news on the market (i.e. recession slashed 80,000 jobs in March and national unemployment rate increased from 4.8% to 5.1%), SPY broke 50 dma after passing 30 dma.

30 dma has an upward movement and may crossing 50 dma. It is still a process and once it is happen, market will have more conviction on the move.

There was a presence of a rising wedge (triangle). Prices edged steadily higher in a converging pattern. The inability of prices to accelerate on the upside despite continued probes into new high ground suggests the existence of strong scale-up selling pressures – due to many bad news coming into the market.

There was a presence of forming double bottom. Despite it was not a strong indication market will move higher, the process had been taken months.

SPY 140 will still be a strong resistance point. If market gets a technical break out of this level, it will test the 200 dma and will reach SPY 145.

Any bad news from earnings this week will initiate pressure to the market and a sell signal may occurs when prices break below the wedge line.

Nevertheless, the bottoming process has been made and Fed will do everything to save the market. Therefore, I will not see that market will be easily drop to SPY 132 (the crossing of dma 30 and dma 50) or even the strong support line of SPY 125.

VIX (Volatility Index) is on decreasing trend to a low of 22.36.

Knowing that market is on a trading ranges, it can be an ideal situation for Market Neutral Options players. Iron Condor with high probability (i.e. 80%) can provide you with consistent income strategy. Be careful on market rally once it has a technical break out of SPY 140.