Where to begin… The SPY Iron Condor was put out this month will a slightly bullish bias as it is our opinion that we are due for a bit of a correction to the upside. We have oversold readings across the broad markets and a classic triple bottom setup. Now, we expect a bounce to the upside in the coming sessions, but have insured our positions with a cushion to the downside as well. The reason that we may see a decent lift here is tied to the XLF (Financials) ETF. The XLF is testing near 10 year lows and is hovering at just about the $20.00 level, which also serves as a key psychological level. If the XLF’s can hold the level over the next couple of sessions coupled, we may see a lift in the rest of the broad markets.

XLF Monthly Chart: Red Support line near $20.00 testing almost 10 year lows. Also happens to be testing 3 standard deviations out away from the mean price around $32.00. The bonus trade sent out today is also a trade that would take advantage of a bounce in XLF off of the yearly support. There is a bit of a cushion to the downside in the upper $18 levels as the position needs to expire above that price by July expiration to be profitable.

xlf

Another reason for our bullish tilt comes from recent VIX (S&P 500 Volatility Measure) readings. Past highs in the VIX around 25 and are running into 3 standard deviation channel lines, and if you are one that subscribes to the reversion to the mean theory, we are looking for a return of the VIX into the high teens as the linear regression lines right through roughly 19 and a half. A lower and falling VIX reading is usually indicative of a push higher in the broad markets — more complacency and bullish sentiment is usually correlated with lifts in the markets BUT not always.

SPY & IWM Charts below (Triple bottom setups - Oversold RSI Readings):

spy

iwm
And on a quick note, for those of you out there looking for exposure to either long or short Oil, the MacroShares Oil Up and Oil Down funds have begun trading. Symbols UOY and DOY respectively.

Good Trading!

Sphere: Related Content