The week before last, most markets held their relative support areas and rallied sharply from them. Last week, most of those markets chopped sideways, which may be them consolidating the prior week’s gain. It appears that the last month or so has been a choppy consolidation of this year’s recent gains. That is for the most broadly followed indices like the S&P 500, the NASDAQ 100, and the Dow Jones Industrials. That is a positive for the bullish view of the markets.
The Transportation Index that had broken down on the daily time frame has repaired some of that damage. However, the Financial Index that had made a new high last month is now in question of breaking its weekly uptrend. Long-term bond yields have fallen considerably over the last month, which is putting pressure on the Financials.
I believe that the falling long-term interest rates and the relatively weak Transportation Index will keep the Federal Reserve from raising interest rates further now. Further rate hikes by the Fed had was assumed to happen, which can be monitored by very short-term interest rates.
The short-term Interest Rate Index, symbol $IRX.X, which measures three-month yields was at about five cents in September 2015. On July 24 of this year, which is exactly when we got our first sell signal from our market internals, that index topped out at $11.58. That is almost a 23,000% gain! It is now at $10.20.
The relatively small decline from the high in $IRX.X, which suggests the Fed will not raise interest rates further in the short term, is helping Gold move higher.
There are positives and negatives that seem to be neutralizing the broader markets overall. All we can do is continue to monitor day by day and week by week and look for where the money is flowing into and out of.
We have our lines in the sand of Major Support (MS) and Major Resistance (MR). Until one of those lines has been broken decisively, the trend will be sideways.
We still must keep in mind that the markets are into a historically bearish time of year. However, up until this point, they have refused to show any real weakness to suggest they’re going to succumb to that historical time frame.
There are historical guidelines, which can serve us well as a guide, but we don’t trade guidelines alone. Price has to confirm any guideline or market internals.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that will review each week. Monday set the high for the week with another Topping Tail (TT) that was followed with a gap down and a bearish Wide Range Bar (-WRB) lower. So far, these -WRBs have had little follow through and this one so far has been the same.
The area of Major Support is rising and Major Resistance is moving lower. These reference points getting closer typically proceeds a move in one direction or the other. The direction is often in the direction of the long-term term, which is still up. But this market continues to keep second-guessing its direction in the short-term. Of course, that is what choppy consolidations do.
You have the horizontal lines in the sand above and below. Most of the analysis that you likely see in a situation like this uses diagonal upward and downward trend lines.
You may have heard me say it before but I will repeat it for those of you that are new to Master Trader or my classes from the past. Connecting higher low dots or lower high dots and projecting lines into the future does not provide support, resistance or trend analysis. Look to the left and do your analysis horizontally.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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Below is a daily chart of Becton, Dickinson and Company (BDX), $203.70.
Trade: Provided it does not open below $202, over 10-Min. high consider shorting Oct (10/20) $195/190 bull put spread (39 Days to Expiration (DTE)) for a limit of $.55/share (closed at $.60/share).
Technical Setup: Bullish Wide Range Bar (+WRB) Breakout from bullish consolidation on daily chart, bullish uptrends on weekly and monthly charts.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $197.28.
Below is a daily chart of Citigroup Inc. (C), $66.17.
Trade: Under $65.70, consider shorting Sep (9/22) $67/70 bear call spread (11 DTE) for mid-point (closed at $.62/share).
Technical Setup: Breakdown daily and weekly, weak financial sector.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $67.02.
Below is a daily chart of The Clorox Company (CLX), $134.04.
Trade: Consider shorting Sep (10/20) $140/145 bear call spread (39 DTE) for a limit of $.72/share (closed at $.62/share but is extended hourly).
Technical Setup: Breakdown from bearish Double Top (Major Resistance) daily, possible head and shoulders weekly, and MR monthly.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $139.32.
Below is a daily chart of Dr Pepper Snapple Group, Inc. (DPS), $91.52.
Trade: Provided it opens between $91 – $92.20, consider selling the following $5.00-wide Iron Condor: sell Oct (10/20) $92.5/97.5 bear call spread and sell Oct (10/20) $87.5/82.5 bull put spread (39 DTE) for around closing mid-point of $1.37/share. Below shows the order entry on a 10-lot (you place as one limit order):
Technical Setup: Multi-week range bound daily and weekly, time decay strategy.
Option Strategy: Iron Condor (IC).
Max Gain: Credit received, 37.7% ROI ($1.37/3.63) if expires worthless.
Stop Loss: $89.78 on downside; $92.62 on upside, close losing position.
Below is a daily chart of Pfizer Inc. (PFE), $34.12.
Trade: Over $34.25, consider buying Oct (10/20) $32/35 bull call spread (39 DTE) for mid-point (closed at $2.03/share).
Technical Setup: Breakout daily, bullish weekly and monthly.
Option Strategy: Bull Call Debit Spread (BCS).
Stop Loss: $33.68.
Below is a daily chart of Pepsico, Inc. (PEP), $115.04.
Trade: Provided it does not open above $115.50, under the 10-Min. low, consider buying Sep (9/29) $119/113 bear put spread (18 DTE) at mid-point (closed at $3.47/share).
Technical Setup: -WRB Breakdown daily after bearish gap and weekly bearish Topping Tail.
Option Strategy: Bear Put Debit Spread (BPS).
Stop Loss: $116.52.
Below is a daily chart of Allergan plc (AGN), $233.55.
Trade: Provided it does not open below $230, over 10-Min. high, consider shorting Oct (10/20) $215/205 bull put spread (39 DTE) for a limit of $1.20 share (closed at $.84/share, but spready and extended hourly).
Technical Setup: Breakout from Bullish W-Formation from Major Support on daily chart.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $222.28.
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Finally, we hope everyone and their loved ones potentially affected by the historic Hurricane Irma will be safe!
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
Dan Gibby
Chief Options Strategist
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