Life is pretty simple: You do some stuff. Most fails. Some works. You do more of what works. If it works big, others quickly copy it. Then you do something else. The trick is the doing something else.
Leonardo da Vinci
The COT index number is +23.2%. The commercials stepped into the market with volume. Last week we had a non-committal market that fell slightly. I was of the opinion that the commercials would not step into the market with the volume necessary to keep it moving higher. Well the volume is there, but we’ll have to wait and see if this is enough to break the market to new highs at a significant resistance point.
On the bull side +23% is on the high side. Usually, barring exceptional circumstances, the COT index declines from around this level. Any declines will likely coincide with a falling market. Bear readings can be higher, rising to the [-30%] levels.
M&A activity is on the increase. This is generally bullish. Also Hedge Funds on the sector-level, [the top 50 hedge funds] added the most exposure to the Energy sector, while Apollo Capital’s sale of LyondellBasell led to a significant decrease in exposure in the Materials sector. The funds added over half a billion dollars in exposure to each of four North American companies related to oil and gas, refining, or energy equipment and services: Whiting Petroleum, Valero Energy Corporation, Talisman Energy, and Cameron International. Of these names, Valero Energy is noteworthy for rising nearly 50% since the beginning of Q4. The most overweight sector continues to be Consumer Discretionary (+8.2 percentage points relative to the S&P 500).
Assuming a bull impulse on the 5day chart, there is support at $183.50, where, buying support would be expected to enter the market. This would be a place where a trade would offer a good risk/reward.
The trend is bullish on both the 5day and 3day which again is a positive for placing a trade in this area of support.
If the market trades at $183.5o’ish, then a bull call spread would make sense. So buy $183.oo and sell $183.5o for circa a $0.50 debit. Your risk is fixed at $0.50/contract and would start at $183.oo. Support being at $183.50 should provide that safety.