A Look Back and Ahead

It’s safe to say we’ll finish this week with another higher high/higher low to go with those of the past 2 weeks.  I’m quite comfortable planning for another higher low next week, but how do we use that info?  Since everyone was eyeing Monday’s surge into the June lows around $SPY 126, I’ll base my expectations around that as a possible test of importance.  That would allow us to fill Thursday’s gap, which would be discussed as bearish but I find harmless to the 1-3 month bull case.  We are still in a range so a long-term participant has to view that as more of an area gap than a breakaway gap, and therefore it has a good chance of being filled.

Until we manage that test of 126, I’m treating this as a rally with upside to 1350 and downside to 1225…thus not real compelling at $SPX 1285.  If I can see another episode like those ending on October 18 & October 26, I can rework the plan and buy more at that point.  For now, I’ve switched half of the Jan 1325/1350 $SPX to a Jan 1325/Nov 1300 as the allure of grabbing decay after the huge bounce was too great to resist.  I have a tight leash on those short Nov calls; if we break 1300 OR get a narrow range/inside day(contraction leads to expansion) I will move them back to January 1350.

The power of this move is incredible but also faces months of price memory just above, encompassing this past January to July.  I see no need to abandon pursuit of a higher target but the job is to manage risk as it evolves; at this point a time out would be most welcome.  I’m hoping for an inside week but if this market has taught us anything it’s to plan for even the craziest of scenarios.