To mix it up a little this week I took a look at the monthly S&P 500 ($INX) chart for the past five years. I went back this far to try to get a better idea of where we stand in reference of this long bull market. I used the monthly chart to take out some of the day to day and week to week “noise” that can throw off this kind of view.
What I found was that the $INX still has some room to the top side before hitting the upper line of higher highs. I could see the $INX getting as high as 1600 (1525.75 as of Friday) before coming back to the lower line of higher lows that is near 1400. One point that helps that is the (green) 10 month moving average that is just below the close of two months ago and open of this month.
We’re in the top half of this trading channel that has worked so well for five years plus. That’s not such a worry for me now as I remain cautiously optimistic. The middle line that I drew is less precise. It cuts through the middle of the trading channel and was a ceiling for a lot of 2005 and some of 2006. I’m hoping that line becomes a floor as it did for a couple of months this summer. If that middle line does break, the 20 month moving average (blue line) coincides with the lower line I mentioned above.
The short summary is while I don’t see tremendous upside potential, I don’t see large downside risk. That leaves us in a good spot to continue selling naked puts out-of-the-money (OTM) for a little longer. I’d like to be able to finish 2007 strong while we have a little longer to avoid thinking of the capital gains we will have to take on all of our successful option trades this year. I plan to exit my NYX and MRO long positions before the year is over to have some type of write-off, but the way MRO is going now I might be back to my buying point on it soon and all premiums I’ve taken will just be straight profit.
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