Monday Warm Up

Things are still looking quite dicey across the board, i.e. volatile and mostly sideways. Which means we’ll have to remain extra cautious with our exposure and keep an objective mindset until we see more directional tape again. So this will be a quick Monday morning warm up with some general perspectives and ideas as to what symbols to watch:

The wave wankers amongst us would probably label the current formation a 1-2-1-2 pattern and I simply call it a corrective inflection point after a major advance in equities. What I mean by that is that the odds are roughly equally balanced right now pointing in both the bullish as well as bearish direction. Relatively small price advances higher or lower can affect the odds of continuation considerably and it’s a perfect honeypot setup for market makers and option sellers.

The little squares I drew are to give you an idea how these types of situations can resolve but they by no means constitute a prediction as to how it will resolve in the end. We could easily fall from here and that fast as market conditions have, as always, changed since late January. Just know that our bullish/bearish inflection point is most likely around the 2315 mark. A drop through that draws us lower although I don’t believe hat it’ll go very far, at least on the very first leg down.

I usually keep my exposure during such times very limited as fast moves can quickly transpire out of nowhere. These are not bad times for selling vega as we are still in a historically low range. Being long a call here exposes you to vega risk but if equities explode higher then the worst you can expect is a drop from below 14 right now to perhaps 12, which sure beats a drop from 22 to 14 as we saw last year. But however advised that your premiums will be affected on the way up even if you are holding calls, that’s part of the territory and the very reason why I would probably employ a bull spread instead.

If you were still holding crude from our long campaign then here’s a strong hint that it’s time to start taking profits. It’s been an amazing run higher and we are now pushing into a resistance/whipsaw zone. Secondly it’s time to roll over anyway, so now is a good moment to cash in your chips.

Below the fold: two charts you absolutely need to see…

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