There’s that upside energy I mentioned in the last post. The market rebounded to the 2120 area with a big 1% move up. There were no sellers left. That’s a big hit to the bears who had all that they needed for a full blown correction. Supply and demand is the rule, and the supply dissipated and the sell off ended. The tells were in the big bearish attitude which pointed to the market having a lot of pessimism which means less long exposure and less sellers going forward into Wednesday. Once you get a big sell off like that and a rebound that surpasses many of short stops, you get a short fuelled V-rally. Again, this is especially pronounced when there just isn’t many pressured longs selling, the law of supply and demand. That’s just right now though, things change quickly, it doesn’t mean we won’t revisit the lows in the upcoming days. On Tuesday, the TRIN was over 2 and usually that means the lows will be retested in the short term.
New note: I just read Urban Carmels report and he’s got a whole report about the TRIN and Tuesday/Wednesdays action. He’s basically saying that we can expect the lows to be revisited. In 2012/2013, there were 10 instances like Tuesday with strong bounces, all led to more selling. In the last 3 years, 20 instances were TRIN spiked over 2 and 90% revised the lows. Caution is warranted for longs perhaps.
Look at that chart, what a difficult market to trade. BIG gaps everywhere and lots of V-shaped recoveries. These past 5 months have shown a true battle of bull/bear, a market with relatively equal buying/selling pressures.
The RUT MIC stayed the same at about 4.5%. I removed about 7 1100/1120 put credit spreads for between 25c and 42c as the market rose I did this to release some margin and also to basically start taking off some of the trade. The delta is at about -20 which is a pretty big change from Tuesday when I was getting ready to adjust on the downside! I will adjust at about 1262. My hope is that we get till next week before that happens (soak up some good time decay without any adjustments). The theta on the trade is about $53 per unit. I think the best case scenario is about 6.5% for this trade.
The SPX MIC is sitting at 5%. I haven’t done anything to it in a week. The delta is at $0. Time decay at $100 per unit per day. I think best case for this trade is about 7.5-8%.