Analysis of S&P 500 index from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,453.04 up about 12.91 from Monday’s close. The longer term trendline going back to June is still very close to the 50-day moving average of about 1430.53 for support. It is still officially intact after the market responded positively to a couple recent tests to this support level. However, the Relative Strength Index (RSI) is showing momentum is waning. The bulls are trying to take charge today, but with the momentum waning Michael is very sceptical that the SPX can get back to the recent highs.
We also have a set of three trendlines on the chart, these are called fan lines. They really show how strong the trendline is from June. Also, it is where the 50 day moving average falls. If we do ever break that trendline it may be quite bad for the markets in general. So keep a close watch on that 1430.53 level. So far it has not happened so we have to assume the bull trend that started in June is still holding.
Discussion of the volatility index from TradeKing’s Options Analyst Brian Overby:
CBOE Volatility Index (VIX) – at the time of this broadcast, the VIX was about 14.58 down .69 from yesterday. Not much going on here. Trading below its 50 day moving average of 15.38 but pushing back to its year lows once again. Still looks to be waiting on some news from the EU meetings in the next couple of days and a surprising lack of movement considering earnings season has just begun. The November and December VIX future contracts look like they are trading closer to the 100 day moving average of about 17.40 in the VIX index. According to Brian, it is usually the case that the VIX is status quo this week.
Brian recently blogged about what to know when trading VIX optionshere.
Quick Takes Pro Chart of the Day is Marathon Oil Corp – (MRO)
Discussion from QuickTakesPro’s Michael Kahn – At the time of this broadcast, MRO was 30.52 up about .65 from yesterday. It has bounced off its own moving trendline and above both the 50 and 200 day moving averages of around 28.82 and 28.94 respectively. Also a bounce of its support line of about 29.25. It could continue its rising trend after the breakout today.
Brian Overby’s possible short term strategy based on Michael’s chart – MRO –Bull Put Spread AKA Short Put Spread
Marathon Oil Corp – The implied volatility is just above the historical volatility about 27.36% and 25.47% respectively. Earnings are expected to be announced on November 6th so we definitely want to be aware of that date. The market in MRO is up about 2.3% already today, since there has already been a decent pop up in the stock we are looking to do a neutral to bullish trade. We hope the support of the trendline that it just broke through holds. That is around the 30 area which is close to yesterday’s closing price.
Possible Speculative Short Term Trade –Bull Put Spread AKA Short Put Spread
– Sell 1 MRO Nov 30 Put
– Buy 1 MRO Nov 28 Put
– Bid 0.47, Mid 0.49, Ask 0.52 32 Days to Expiration Breakeven: $29.53
– Total net credit is .47 if we hit the bid
– Maximum potential loss is 2 – .47 = 1.53
– Maximum potential gain is the net credit received = .47
– Total commission to enter this trade is $6.25
Possible Bullish Alternative Trade (Keep an eye out for earnings 11/6) – Long Call
– Buy 1 MRO Nov 29 Call
– Bid 1.93, Ask 1.97 32 Days to Expiration
– Total net debit is 1.97 if we hit the ask
– Maximum potential loss is $1.97
– Maximum potential gain is unlimited if the stock goes to infinity (Not going to happen).
– Total commission to enter this trade is $5.60
**NOTE: option prices are given as a per contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
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TradeKing Senior Option Analyst