Analysis, Perspective, Trading Strategy
At the Edge of Chaos: Last Call - Are Mutual Funds Going to Fund the Market’s Last Round Before the Fed Closes the Bar?
Duarte in the Money Options
CLR shares took a beating after the White House reduced oil drilling on federal lands and on a governmental policy shift toward green energy in early 2021. But the reality is that given the damage to the Gulf of Mexico’s oil infrastructure during the recent hurricane season, persistent natural disasters, tightening European energy supplies and forecasts for a cold winter, CLR with its vast shale deposits could be in a good position for profiting from circumstances.
Interestingly, despite the political headwinds, CLR has been improving its operations and has managed to deliver record setting free cash flow, to the tune of over $1 billion in the current fiscal year via streamlining operations and simultaneously reducing debt by nearly $900 billion. Moreover, the company has raised its dividend and has increased its share buyback program, with the latter helping to support the share price.
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In other words, CLR is well positioned to withstand at least a moderately nasty bear market in energy while being positioned to profit in a bullish environment. Now, if oil prices continue to firm and demand rises, as it well may over the next few months, the stock should move decidedly higher. Accumulation Distribution (ADI) and On Balance Volume (OBV) are bullish at the moment as the price starts to move higher. And the RSI is nowhere near 70 which means the stock still has room to run.
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SPY Options Hedged to the Hilt
It’s difficult to predict what will come of this situation in the options market other that what happens here will affect the stock market. All of which of course makes the continuation of the crash proofing that is evident remarkable.
Essentially put buyers have remain active just below the active strike price for SPY options. For example, if SPY has been trading at 450 put buyers have been increasing their activity at 449 in order to prevent major losses if the market breaks down to that level. What this does is create a market that goes nowhere and continues to churn until there is massive selling which prompts more put buying and index futures selling to hedge the put sales that are the other side of the put buy trade.
And while this pattern was reversing some over the last few weeks, it’s back in full swing and actually seems more aggressive. In other words, when the sellers eventually gain the upper hand the market is likely to go down hard and fast
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Market Breadth: Disappointing End to the Week - Again
The New York Stock Exchange Advance Decline line (NYAD), the most accurate indicator of the stock market’s trend since 2016, bounced last week but once again failed to close decisively above its 50-day moving average while the RSI indicator for NYAD remained below 50. Thus, technically speaking, we are in sell signal territory
And yes, the Sell Signal is still reversible with one or two strong days as long as NYAD makes a new high. But the longer it takes for a meaningful reversal, the worse it will get for stocks.
The Nasdaq 100 index (NDX) remained below its 20-day moving average but rebounded above the 50 day moving average and also moved back above the 50 area on RSI.
In addition, the S & P 500 (SPX) closed the week above its 50-day moving average as while showing improvement in Accumulation Distribution (ADI) and On Balance Volume (OBV).
Good news! I’ve made my NYAD-Complexity - Chaos charts featured on my YD5 videos and a few more available here.
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