Monday, November 12, 2012

Inaugural S&P Soothsaying

OK I've promised a bit of analysis on the S&P500, for whatever it's worth. The idea is not to be a guru predictor of the market, but to have a view of the market from a retail option trader's point of view. The idea is to  try and pick low risk entry points  for directional trading, and to perhaps determine where I don't think the market will go... the long gamma/short gamma juxtaposition.

Or perhaps throw my hands in the air in confusion.

I'll probably have to make a page explaining the analysis method more fully, but on the chart below are support and resistance zones on various time scales as I see them and according to a formula; week, month and quarter. These are similar in philosophy to pivot levels.

Do they work? Yes sometimes they do, but sometimes they don't, but that's not really the point. The idea is to get a road map of where the market might go, based on where it's been.

Why should this work? It's basically the theory of time and price, or my understanding of it. The market has a collective memory of previous price on these various time frames and can only accept moves in an orderly fashion. In other words, If the market believes it's value is different to its price, it will take time to get there...

...unless some momentous fundamental change intervenes, such as a derivative chain reaction blowing up in everyone's face.

So below are support and resistance at the time frames mentioned looking forward. I haven't got much to say about where I think it is going apart from based on standard deviations of moves, I think we will get a bounce in the following week.

Perhaps there is one of those intervening factors at the moment, such as the re-election of a president unpopular with Wall Street types. I'm inclined to be on the sidelines for the moment.


  1. enzo,

    Ok, I've just placed a trade on SPY.

    It is a vertical bull spread:
    Buy $137.oo @ $1.96 November expiry [4 days]
    Sell $138.oo @ $1.28

    Its a 1:2 r/r [which I don't really like...]


    Incidentally, you have to get rid of this type in the letters b/s. They are impossible to read.

    jog on

  2. Duc I think the time frame is right for the trade. SPY should waddle up/sideways till Friday at least I would have thought.

    Todays action looks encouraging too.