Overview:

As the S&P pushes initial resistance of 2600 looking to open new positions is comes at a risk.  This is an area where last week we sold covered calls against the shares we own, however, with earnings starting this week this is not an automatic level for a huge pullback.

We recently closed our MPC trade for a nice profit to start out the year.  We are looking for re-entry but want the market to dictate entry not force trades here.  Our AMD call expired worthless so we collected some additional premium on the current shares we own.  On any rally we will be looking to sell another covered call on AMD.  We still have one trade active with CGC which expires the Friday.


S&P

The futures market is down pre-market but this is not indicative of how trading will go during the day.  Many traders get caught up in pre-market moves only to find it reverses early, mid or late day on Monday.

The 2600 area is initial resistance and we can look for a pullback here to sell Puts or look for swing trades.  We have a nice recovery structure in the shape of a “V” so we do not expect a retest of the low, though it is not out of the question.  We are looking for a retest of 2500 and a reversal signal to enter new positions.

We had a couple Call options expire Friday and have one on CGC that expires this Friday.  Last week was the time to sell calls into strength. We are going to exercise some patience here and look for the market to provide direction.  I see many looking to short this market and when the retail investor is looking to short today, I just step aside.

Our strategy is pretty simple here, wait for an opportunity and allow our current trades to play out.

Summary

As tempting as it may be to short this market, the market is not in a position structurally to take this type of risk.  You may be right this time, but if the market pushes through 2600 it could trigger short covering and a potential short squeeze.  The other side of this is just as relevant and it is not a time to add new long positions either.

This is simply a “No Trade Zone” in our opinion and we will allow the market to decide and provide direction before determining our course of action.

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