The Markets Got back to Their Old Habits of Making New All-Time Highs

Tom Gentile

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By: Tom Gentile
April 3rd, 2024

4 mins read

Originally published via our newsletter previously. Subscribe for early access!

The continued habit of making all-time highs for the markets, but in some respect it wasn’t made in the recent fashion where a small percentage of stocks were the drivers to these record highs.

Today saw a broad rally take place. All 11 sectors of the S&P 500 traded higher ked by Utilities +2.8%. Next highest gain on the day was Real estate +2.4%. Rounding out the top three was Industrials +1.6%.

Image
Image provided on www.sectorspdrs.com

You can see it wasn’t just a handful of tech stocks driving the rally today.


Market in Focus SPY – SPDR S&P 500 ETF Trust (SPY)

120-day Candle chart of SPY
120-day Candle chart of SPY

I have two trendlines on the chart, one on the lows of the daily candles and one on the tops of the daily candles.

These represent the support and resistance of the uptrend that has been in place since the end of October/beginning of November of 2023.

One tactic of a technical analysis trader is to trade a security between the two levels. If one anticipates the ETF lower assess the price point that corresponds to that support level.

If it hits there one can anticipate the security trading higher to the price commensurate with where the resistance line is.

The time frame in which it will take could mirror the time frame past moves between support and resistance had taken place.


From the Desk of a CMT (Chartered Market Technician) – XLE Close-Out

The XLE case study did provide an opportunity to take profits, as well as the benefit of using multiple exits to let profits to run when a position is moving in the right direction. Figure 1 provides the strategy recap – note the significant bid-ask spread and the updated entry data that was less favorable than the midpoint entry typically provided.

XLE Mar 22 89-84 Bull Call Spread with Updated Entry Data (3/5/2024)
Figure 1: XLE Mar 22 89-84 Bull Call Spread with Updated Entry Data (3/5/2024)

Case Study for Short-Term Bullish Assessment of XLE:

  • Buy call to open, 1 Mar22 2024 84 Call
  • Sell call to open, 1 Mar22 2024 89 Call (for a net debit of $2.25)

The exit for a profit was very conservative with a requirement for XLE to close above its previous high which occurred two days later on 3/7/2024, prompting an exit on 3/8/2024. This is one week prior to the timed exit of 3/15/2024

Figure 2 provides an updated view of the XLE daily chart on 3/26/2024 with 3 vertical lines:

  • 3/5, entry date
  • 3/7, the date XLE exceeded its previous high
  • 3/15, the timed exit

Figure 3 is an enlarged view of the same chart. Note that no exit for a loss signal occurred during the period:

  • A close below $84.79, the recent low, or
  • An XLE close below its 20-day SMA, which would be a change in conditions for the short-term trend.
XLE with ROC (14, 7), Volume, and SMAs (20, 50, & 200)
Figure 2: XLE with ROC (14, 7), Volume, and SMAs (20, 50, & 200)
Enlarged view of XLE Bar Chart (3/26/2024)
Figure 3: Enlarged view of XLE Bar Chart (3/26/2024)

A one spread case study with an exit on 3/8/2024 using the quote midpoint yields:

XLE Mar 22 89-84 Bull Call Spread – Single Spread Exit (3/8/2024)
Figure 4: XLE Mar 22 89-84 Bull Call Spread – Single Spread Exit (3/8/2024)

Had a second spread been initiated, the timed exit provides additional profits.

XLE Mar 22 89-84 Bull Call Spread – Single Spread Exit (3/15/2024)
Figure 5: XLE Mar 22 89-84 Bull Call Spread – Single Spread Exit (3/15/2024)

Using the timed exit, the spread approaches its max profit of $275 as shown above using the mid quote of $267. Since conservative entrance prices that were less favorable than midpoint values were used, there is some comfort that profits for each exit are reasonable to use. At expiration the midpoint exit did take the spread to its max profit of $275.

The timed nature of options makes them a challenging instrument to trade and can prompt you to take profits more quickly on a long premium strategy. When in line with your money management rules, do consider multiple spreads and a scaling out process to allow profits to run a bit more. 

Regards,
Clare White, CMT

Thanks for the great education, Clare!

Tom Gentile
C1P: Chief 1-Percenter


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