ManyWaysToTrade Analysis & Market Outlook – 03/20/2017

Although not impressive, markets were able to eek out a gain last week. The S&P notched a 0.2% gain on the week while the NASDAQ registered a 0.6% gain. The stand out last week was the Russell gaining 1.9%. Small caps have been lagging their index brethren YTD so playing a little catch-up last week makes sense.

The 2 other big headlines were the Fed’s rate increase and the face plant in the oil markets. The Fed increased the Fed Funds Rate 0.25% on Wednesday sparking a huge rally in equities. The positive reaction to the rate hike was the Fed’s statement they will be measured [slow] with additional rate hikes. The Fed signaled likely only 2 more hikes this year and market took that as a positive as some were expecting as many as 3 more in 2017.

In the oil space, crude dove sharply lower last week. The story remains a supply story and not one of demand. More specifically, demand remains intact and healthy. However, supply continues to outstrip demand causing a surplus in oil. And as the laws of macroeconomics dictate, as supply goes up with demand remaining constant, price will fall.

Market Analysis:

Last week didn’t really tell us much about the Market. Quadruple Witching (the expiration of front month dated equity and index options as well as a futures and futures options) occurred Friday. When this occurs, markets typically trade fairly quietly as they did Thursday and Friday. As such, the story of the week was the Fed rate hike resulting in a big rally.

The SPX’s RSI has cooled off but remains at the upper end near 60. SPX price continues to trade above the 20 day moving average. However, price has dropped to intersect the 20 day and further weakness in price will easily drop it below the moving average. Also of concern is the still lofty spread between price and the 200 day moving average; currently >7%.

From a trading perspective, Option Scalper sold calls last week into the rally and Time Bandit Trader will be opening new trades this week as well positioning for a pause in the rally.

 

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