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Playing With The ETF Spiders

12/27/17 04:26:02 PM
by Koos van der Merwe

We day trade options on SPY. One outstanding stock, one simple strategy, one hour a day to earn 5-10%.

Security:   SPY
Position:   Accumulate

"I got out of equity trading years ago when I experienced uncalled for losses... totally befuddles the mind as to how things play out, absolutely defies even gravity. So now I only trade SPY, which makes life so much easier."

The above is an email I received from a reader of STOCKS & COMMODITES. I must say that I have never looked at the ETF Spiders as something to trade, but since it has been brought to my attention, I must admit it does make a great deal of sense, especially in a market that is going up, up and up with no top in sight. We all know that a crash is due, even Warren Buffett is suggesting that it is on the cards; the only problem that not even Gann charts can solve, is when?

Figure 1. A monthly chart of SPY.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a monthly chart with an Elliott wave count suggesting that the SPY is in a WAVE 3 and that it could correct in a WAVE 4 to either 229.40 or 206.30. The SPY has moved up strongly from March 2009 and with the RSI Indicator at overbought levels but not giving a sell signal, it could still rise further to possibly 288.74, a WAVE 3 top possibility. Do note that volume is falling. A rising share price with falling volume does suggest weakness.

Figure 2. A weekly chart of SPY.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a weekly chart with an Elliott wave count suggesting that the SPY could be in a WAVE 5. The RSI indicator is at overbought levels but has not given a sell signal, suggesting it could rise further. A Fibonacci extension of WAVE 1 added to the low of WAVE IV suggests a WAVE V top of either 280.81, 289.18, or 297.56. It could even rise to a high of 324.68. Elliott wave has a WAVE 5 equal to a WAVE 1, and it is very rare that a WAVE 5 is greater than a WAVE 1. Political events are obviously showing their influence.

Figure 3 A Daily chart of SPY.
Graphic provided by: AdvancedGET.
The chart in Figure 3 is a daily chart with an Elliott wave count suggesting that SPY is in a WAVE 5 with the possibility that the price could rise to 274.97. Do note that the RSI indicator is playing with the 70 horizontal line, but has not confirmed a sell signal, but the Stochastic RSI indicator has given a sell signal. Volume rose as the share price strengthened. The JM Internal Band gave a buy on August 30. The JM Internal Band is a 15 period simple moving average offset by 2% positive and 2% negative. A move above the upper band suggests a buy and below the lower band a sell.

Whether you trade the Spiders ETF by buying and selling the ETF, or by trading the ETF buy selling naked weekly put options and if assigned, then selling weekly covered calls, the index does remove a great deal of stress — like declaring dividends, etc. Definitely something to look at.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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