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SPX broke up from a very short consolidation

Last week the market broke up from, what I think, was a very short consolidation pattern. After the big rally sparked by a better-than-expected CPI report last week, the markets stalled and traded sideways for a few days. This happened right under the major resistance at 4,525. So, the question appeared, was this going to hold or were we doomed and headed to bouncing down again? I bet, many bears who were predicting doom and gloom all year long were wishing for a crash. But today, the markets broke above that consolidation and spiked higher. Unfortunately, the consolidation was not very strong so the subsequent rally may not be very strong either (the longer the market stays in a particular pattern, the more meaningful it becomes). Moreover, we are probably going to see the end of the year rally (Santa Claus rally).

SPX consolidation

This trend helped our trades. Last Friday, we placed a new “Crumbs Iron Condor” with today’s expiration. We had 4,465/4,470 puts and 4,580/4,585 calls and we collected 0.30 ($30) credit. This trade provided 102% annualized return as it expired worthless for a full profit.

We also rolled some older SPX call spreads into put spreads in expectation of an end of the year rally.

We think the markets will continue going higher as inflation will be easing more, and FED will start cutting the rates. I recommend stop listening to all the talking heads and doom and gloom predictors predicting their end of the world. They were predicting the market crash since 2009 and they were 99% wrong. And they will always be wrong.

Tomorrow, we will get the FED’s FOMC meeting notes that will come under scrutiny from investors seeking a clue whether there would be any hint of rate cuts next year. I think, it is foolish but short-sighted Wall Street does that. I think we will not see anything different from what we already know. The FED would probably stay a bit hawkish and the markets may shrug it off and continue higher. If they see a hint of rate cuts, expect the market to blast off. We are also heading to a short week due to the Thanksgiving Day, so on Thursday, the markets will be closed and on Friday the markets will close early (at 1 pm ET). This is typically a quiet week and markets tend to drift higher.


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