S&P500 In A Confirmed Rally

On Friday, March 23, 2007, stocks ended mixed on lower volume, with the NASDAQ giving up 0.1% and the S&P500 and S&P 600 gaining 0.1% and 0.4%, respectively. However, this mixed trading session capped the market's biggest gains in more than 6 months.



This last week saw gains of 3.2% on the NASDAQ, 3.5% on the S&P 500, and a monster 4.1% gain on the S&P 600. These gains took place with oil trading above $62 per barrel and while the Iranians captured British Marines and naval vessels.

The overall market is in a confirmed rally. Confirmation came on Wednesday when we saw higher price gains on increased volume. Wednesday also saw the S&P500 push through resistance around 1,410 and retake its 50-day moving average at 1,424. The S&P closed on Friday at 1,436.

If this market rolls over and continues the downward trend initiated back on February 27th, the next price target would be about 1,350. This area constitutes about a 50% price retracement from the start of the last rally in July '06.

The question is whether the rally will continue to achieve new price highs. The prior high was at 1,460, which a week ago seemed like safe ground for an April bear call spread. I am not convinced that the market will take this ground by April expiration, but our adjustment trigger is lower than that.

Our plan right now is to continue monitoring the market, looking for an opportunity to open a bull put spread. If the market continues to consolidate its gains, we may have an opportunity to close our call spread for a price near what we received when it was opened. If that occurs, it may be a prudent move to take advantage of it and preserve our capital.


Good trading!

Christopher Smith
TheOptionClub.com