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Short-Term Overbought Market

 
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PostPosted: Sun Feb 03, 2008 8:15 am    Post subject: Short-Term Overbought Market Reply with quote

The SPX one-year daily chart shows the daily NYMO (above price chart) closed at 79 1/2 Friday, which is a multi-year high. The last two times NYMO rose to about 80, SPX pulled-back roughly 50 points within a week. However, the daily MACD (below price chart) is bullish, which suggests if SPX pulls-back, over the next week or two, e.g. to 1,350 or 1,360, that may be a short-term buying opportunity, e.g. for SPY Mar calls.

If the market opens high Monday, or continues to rise early next week, that may be an excellent opportunity to buy heavy positions of SPY Mar puts. It seems likely, SPX will trade in a range short-term. So, puts may be traded taking advantage of volatility, i.e. buying some puts on market bounces and selling some on market pullbacks, e.g. to lower average cost, and remain in position with some puts for a further pullback.

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