A ray of hope for the bulls came when rumors OPEC was considering a meeting to cut production gave oil a late day rally. This created a few bullish signs on the chart of Light Sweet Crude Oil Futures (/CL). First a hammer like doji candle pattern appeared. Second, a bullish divergence set up is in place using the RSI indicator. Oil futures are at a new low (a 13-year low actually), while the RSI is at a higher low and beginning to curve upward. Third, stochastics are in the oversold area looking to be curving up also. This all suggest that further downside is limited in the short term.
So, if oil settles down, maybe the market will also. That would be a huge difference from what happened so far this week, with the VIX trading around 30 again, and intra-day price swings of more than 1% occurring regularly.
With markets down so much this week, and signs of bullishness in oil, I sold the 1775/1765 SPX put spread expiring tomorrow for $1.05. By the close today it was worth 40 cents.
I also looked at the NDX and started marking up the graph. A couple of items stood out. First, I measured the NDX recent high price to the recent area of support, about a 700 point move. As support broke, expectations should be for a similar move from the previous support level around 4100 to around 3425, where previous long term support exists. We may also expect some support around 3715, as shown on the chart below.
The NDX is set up is similar to the SPX with stochastics in the oversold area and curling up, and a bullish divergence in the RSI. So, I sold the 3660/3650 (you read that correctly!) NDX put spread that expires next week (Friday morning) for 80 cents. That is 300 points (7.5%) lower than today's price at the close. The last time we had a big move like that was the third week of August, but the set up was much different then. We have a shortened trading week next week, so really the trade should come through quickly.
Today, McMillan noted that Put/Call ratios on the SPX had turned bullish from very high levels. This usually marks a 100 point move in the SPX. I may need to jump on that very quickly.
