S&P 500, XLF, US Dollar, Inverse ETFs — Charts and Indicators
The market is overbought and here’s my case —
Click charts to enlarge
$SPX
Retraced nearly 100%
XLF
Looks good. Low-volume week and WFC pre-announcement manipulation or not, the fact is the pattern I was watching played out as expected. Possible scenarios:
- fills the gap and goes back up
- consolidates just above new support level, this would be the proper behavior for a high volume breakout
U.S. Dollar Index
Despite bullish patterns that worked out on the financials and SPX (and XLU and probably some other indices), oddly enough the U.S. dollar is showing the same pattern. Should it break out, this rally may die. $US is a factor that may work against the continuation of the move up. It’s one of those things that works, until it doesn’t.
$S&P 500 Stocks Above 50-Day Moving Average
Seriously overextended, must correct
$NDXA50 Nasdaq 100 Stocks Above 50-Day Moving Average
Same here
QID
On long-term support here
SDS
Same here, though it can still go lower, to yet another long-term support level 
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By selling deep in the money calls, one can extract cash from a long position without having to trade the underlying equity. One can take advantage of extracting the time decay, and also have an effective hedge against a pullback. As with everything, timing is the key. If an investor can write the options near an overbought technical area, he/she can extract cash from the equity by covering the option during a technical correction. With some patience and discipline, the investor can repeat this process to generate cash multiple times. The caveat of this strategy is that the investor must be willing to lose the equity at the strikes they wrote, and at the same time generate a profit with this exercise. This works best with equities that have very liquid options.
Good luck!
Another caveat is that the investor will lose any upside potential beyond the strike + premium value. Picking the correct strikes is very important. One must be willing to accept that fact, and be disciplined enough to never cover a written option at a loss unless substantial decay has been realized and the investor is attempting to write another option further out in time. “Rolling”.
Patience is the key. Someone is paying you for your time, and be happy to take their money.
Good luck
Great strategy but I’m not ready to buy-and-hold yet.