Active-Trader - Signs of Distribution

Welcome back Active Traders.

The markets provided little opportunity for upside and downside breakouts this past week. Most of the price action was within the context of prior activity with the exception of Tesla (TSLA).  Some members of the Simpler Options trading room made some good money on TSLA calls.  I didn't take that trade and instead spent much of the week waiting for funds to clear in my TradeStation account. Those funds are now cleared and I am no longer shackled by margin rules limiting my trading activity.

As for the markets generally, we are seeing signs of distribution, aka selling.  I used this weakness to exit a few losing positions (CTRX, FB) and exit some winners as well (DNKN, ABC, HMSY, IWN, NEOG, TARO).   As this point, i'm over 50% in cash which has been my highest cash position all year.

I put on my first Iron Condor position in the SPY this past week as follows, BTO means Buy to Open, STO means Sell to Open.

STO SPY Jun 7 162.5 Put
BTO SPY Jun 7 161 Put
STO SPY Jun 7 167.5 Call
BTO SPY Jun 7 169 Call

The trade was for a credit of about .45 per contract with a max loss of about 1.5 per contract.  For the trade to go max profit, SPY needs to close next Friday between 162.5 and 167.5.  Its my first trade of this type so I kept the size small (2 contracts).  Its going to be interesting to see how it plays out.

As for broad market analysis, we are showing many signs of a top.  The weekly chart above shows this is only the second down week of 2013.  It is also the first week when we have had a close below the prior week's low which shows just how incredible a run to the upside this has been.

The daily chart also shows some distribution with the markets unable to take on the high put in last Wednesday 5/22, a top that was firmly rejected on an intra-day basis.

The 5-minute chart shows almost 3 whole points of range for the day which is about double the Average True Range of about 1.5 which equates to about 15 S&P points or about 70 Dow Points.  Most of the selling came in the last hour of the day which possibly signals that those who trade on end of the day and end of the week signals use the lower close on the weekly chart to exit longs.

It will be interesting to see next week whether we can get some follow-though to the downside.

That's all for now, keep  your powder dry and have a great week ahead.