With the recent downturn in the market for yet another
session, it's looking like the SPY is going to pierce the lower
breakeven price at 137.59. According to our rules, we have a standing
conditional order for the autotraded positions to close the position
out at the market if the SPY price violates the breakeven price. From a
statistical perspective, this price movement (without any reversion to
the mean price) is a rare event to say the least, but will happen from
time to time.
With disappointing Intel
results, along with all of the other bearish news on the economic
front, the indices dropped considerably after hours. The Asian session
got off to a weak start, but has since drifted towards the upside. We
will continue to monitor the futures overnight and into the morning for
any signs up a correction to the upside. If selling pressure lasts into
the pre-market hours, we could be looking at another weak open on the
U.S. exchanges again.
The selling was
extremely strong into the close today, which usually leads to somewhat
of a upside corrective bounce the following day, but this isn't always
the case. It looks as if the stage is set for further disappointing
earnings reports from market moving companies. Recession or not, we are
trending down, that much is certain. Whether or not we are entering a
bona fide bear market remains to be seen.
Many
subscribers have wrote in asking if an Iron Condor is appropriate for a
bear market. Our answer is that an Iron Condor is a sufficient strategy
for any market -- it's market volatility that makes for favorable or
unfavorable Iron Condor setups. While we may receive higher initial
credits in volatile markets, the chances of price violating either
short strike is higher as well. As stated before, the market will
compensate risk properly. Vertical spreads (option spreads that are profitable if the price of an index,
or stock, stays below or above a strike price) are another strategy in
which directional bias is taken into account. We may issue these
directional style spreads as 'bonus' trades for those who would like to
incorporate a directional bias. We will continue to primarily trade
probability based Iron Condor setups through these volatile markets.
Practicing proper money management and following the trade rules are
absolutely paramount in times like this. As stated many times before,
variation is part of trading and the ability to be disciplined will
reward those in the long term.