As this market climbs relentlessly higher no matter what, it leaves one wondering if trees grow to the sky?
The answer of course is no–they don't. Everyone knows the market has to reverse–the question is, when?
In the meantime we've been busy closing call spread spreads and trying to mitigate those costs. So is any call spread safe at this point?
To try and answer that question let's take a look at…
The Markets and How They Affect Us
This weekly chart does a good job of showing the range for the past 2 years–if we're not at the top, we're close…
As you can see from the chart above the SPX has broken that critical resistance level at 2100 and could push higher–but will hit even tougher resistance at 2127. So from a technical standpoint unless this market makes an historical breakout, we are very close to the top here.
In her speech yesterday Fed Chair Janet Yellen said that despite Friday's weak Non Farm Payrolls Report the economy is on track, and wage growth appears to be picking up. She also expects inflation to move up, and a gradual increase in rates is warranted. She said it is likely the FOMC will raise rates before targets of full employment and 2% inflation are reached, but there was no mention of timing.
She also warned against overreacting to a single data point–like Friday's Payrolls Report.
According to the CME's Fed Watch Tool there was only a 6% chance of a rate hike in June as of yesterday morning, but that chance fell to only 4% following Yellen's speech.
What is interesting from our perspective is that virtually everything she said was interpreted as bullish. Yesterday the market's rocketed higher after the speech and we saw some follow through today–although most of those gains were erased by the close.
With little economic news to chew on, the markets traded higher today on the back of stronger oil prices. Crude rallied into close to an 11-month high at $50.47.
The weekly API inventory report released after the bell showed a decline of -3.56 million barrels of oil and a gain of +760,000 barrels of gasoline and +270,000 barrels of distillates.
The expectations for Wednesday's EIA inventories are for a decline of 3.138 million barrels of oil. The EIA estimate also calls for a fall in gasoline of -1.305 million barrels and a -504,000 barrel decline in distillates. If the EIA numbers are correct, we could see another push higher in WTI prices because of the decline in refined products.
Today the SPX posted a higher close after spiking intraday to an eleven month high. However, it gave back -7 points of that to close up only +3. The index punched through the 2,116 level to touch 2,119, but peak time was brief falling back to close at 2,112.
The market is either poised for a breakout, or a resistance failure. Given the extremely low volume, the consensus outlook is for a decline. The summer doldrums have started and there are no headlines on the calendar until the FOMC meeting next week–which could cause a pre or post-meeting sell-off–and then the Brexit vote the following week which could cause more cautionary selling.
The point is–although the rally is very much intact the air is getting pretty thin up here–the question is…
How Do We Make Money on It?
No matter what the fundamentals tell us the chart is pretty clear that this market is a lot closer to the top of it's range than the bottom. For that reason we're going to stick with call spreads–and when you see the charts of these two trades you'll know why.
Our first trade is a call spread on an index that has been trending strongly higher, but just double-topped rolling over hard today–a day when the rest of the market was climbing. We'll be taking advantage of it with a well-placed call spread promising a generous 10-day 22% return.
And for our Roth Retirement trade we're looking at a FAR out-of-the-money call spread for a conservative 8-day 25% profit.
We've got two good looking trades lined up to take advantage of this market–so let's get started…
Click here to gain access to today's picks.
Keep up the good work,
Peter