Weekly Options Recap 2/6/21

The bulls remain in complete control as markets closed up near all time highs. All the index products closed the week strong together on Friday. The move higher was very impressive given how week things looked last Sunday evening when the futures markets opened. That was the last time we saw any significant selling as the rest of the week saw the grind higher. As a result markets are now extremely overbought going into next week and due for a much needed pause or pullback.

SPY made a new all time high up at 388.47 Friday afternoon. The next areas of interest on the upside are at 389.00, 389.50, and 390.00. Should we get the needed pullback the first area of support that we are tracking are down at the 8 EMA on the daily chart at 382.20. Below that and we will be looking at the areas between the 20 EMA and SMA at 380.00-380.50.

Markets are starting to show some signs of exhaustion on the upside. Volume last week struggled to hit 50 million shares traded on a daily basis on SPY. Friday’s volume came in at 48 million shares which is 50% of normal historic levels that we like to see. If we are going to get the pick up in volume next week we will need to see a round of selling.

The Daily ATR (Average True Range) is also of concern as it has turned lower down towards 5. This is indicating slower intraday trading with less back and forth movement to work with. We would like to see this reading tick back higher towards 6 as that would open up our options playbook and give us better price action to work with.

The VIX which has been elevated above 20 since the Covid pandemic exploded last March is barely holding on to the 20 handle going into next week. The level of complacency in this market is back near all time highs as no one is expecting any type of significant selling. When we have seen the boat this loaded on one side historically it has been a sign of a late stage move. We will see if that plays out again over the next few weeks.

We are pretty much through the heart of earnings season at this point as most of the big heavy hitting stocks have released their earnings. The focus next week will be back on the potential for another stimulus plan. With markets so overbought going into next week we have to remember that the exit door is very small at this point. Should we get a round of selling on decent volume it could pickup quickly as traders look to lock in gains all at once.

In this week’s Options Recap Video we take a look at how we wrapped up the week with our Overnight Pop trades which have been so good to us the last few months. We also take a look at new trades setting up next week on SLV and PayPal (Symbol: PYPL). Stocks on our watch list for next week include AAPL, SPY, QQQ, IWM, TSLA, XLE, VXX, IYR, and SQ. We will be back on Wednesday for our next midweek recap live on Facebook and YouTube.

Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.