On Friday we saw all 10 of the US Market Summary indexes finally turn green. The last remaining holdouts were IWM and the S&P400 mid-cap index as discussed last weekend. On Friday both of those indexes had a significant up move which took them into the 80th percentile of %B (the 0.8 bucket). So, now we have the ‘sea of green’ which is more favorable for lower risk long side trades. Of course the most profitable long side trades have already occurred from the August 5th low, albeit climbing a wall of worry.
The %B Buckets report now shows that 84% of stocks in the S&P1500 index are trading above their mid Bollinger Band (20 period MA) and the profile of stocks in each bucket looks favorable for the long side.
The SPY is now close to an all-time high and implied volatiltiy is down from the highs of August 5th but still at an 80 rank indicating future volatility is expected more than it has been over the past year. Straddles in SPY have started to turn the corner more in favor of sellers, back to more normal SPY straddle behavior. 1 month historical volatility is greater than 1 month Implied volatility.
The trade we were watching last week
Last weekend MCD was on our watch list as it broke out of its upper auto-trendline which was horizontal going back to April. The breakout saw a new shorter term up-sloping trendline take place of the horizontal trendline. It was on the list because in addition to breaking above the trendline the options had been going through a period of unexpected moves indicating that an options play might be possible.
On Monday it broke even above the new shorter up-sloping trendline and ended 3% higher than Friday. The next expiration at-the-money straddle gained 100%.
All of this played out in EdgeRater PRO, making it easy for us to follow along and place trades to take advantage of the move.
Seasonality Now
Highly seasonal stocks for the next two weeks include the following:
These are all on our watch list for next week. Not automatic trades but we will be watching the straddle performance, Implied Volatility, trendline breaks and changes.
Take a Free 14 day trial of EdgeRater PRO today and follow along with us.