Index Option Trader

Here We Go Again.. Retest

As many of you know, the major indices are at a pivotal, well…pivot. The SPY, IWM and others are in a position to retest the swing lows set in January 08. The SPY is set to retest the 127.50 levels, and the IWM at the 64.50 levels. We may see a slight bounce here to the upside if support holds, as the 2-period RSI reading for both the SPY and IWM ETFs are very oversold on a short-term basis. Variables such as a surprise Fed rate cut, the high Equity Put/Call ratio, and Q1 earnings projection may provide some basis for a lift across the broad markets. Then again, we have $107 oil, the dominant credit problems, and a slew of other unfavorable macroeconomic conditions, so breaking through support may ensue in the coming days.  While Fed funds futures point towards a 98% chance of a 50 BP cut, whether or not that has been digested and priced in yet remains in question. Pricing in in a recessions seems to be the activity of late.

In my previous entry, I talked about the Summation Index as a possible indication of a developing move up, but as we have seen, the reading has spiked into positive territory, only to start heading south again. This is usually indicative of a move lower, but there will be some resistance in the -400 area. Time shall tell.

Here are some charts to give a visual perspective: