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The only option I had expire today was on UUP. My five UUP June $23 long puts expired worthless and I lost my full investment of $141.86.

I’m actually out of town today, taking advantage of the strong dollar while I’m in Greece. UUP was trading at $23.26 when I made my trade in late January, close to its bottom of the year – the exact wrong time to buy a put. I wrote this a few days ago, on Tuesday, when UUP was trading at $24.72. That’s 6.28% higher than it was when I made my trade, which means that if the dollar holds its strength against the euro while I’m away, I negated most of the dollar appreciation that I was hedging against in the other direction. In other words, the stronger dollar means I’ll save something close to $160 over what I thought I’d spend. It’s basically nothing, but had the dollar gone the other way, I’d have been happy with my trade. Now it’s just a wash.

My original plan was to double the number of puts I was long, but quickly saw UUP was done with its decline. I held on to the puts just in case it had a major reversal. If I had sold them, even a month ago, I wouldn’t have made more than a few bucks.

So, that’s it for me for a couple of weeks at least. I know I’ll be swamped when I return and doubt I’ll get a trade in for my own account before my end of the month summary.

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My Trader's Journal by Alex Fotopoulos - 2w ago

My XLB naked put was assigned in March at $63, but the ETF was down to $59.16 at the close that day and made it as low as $55.21 on April 2. I didn’t expect the weakness to continue, so I sat on what felt like dead money until today, two and a half months later. Actually, I entered the limit order that hit today a few days ago, but it took until just after the open this morning for the order to get triggered. While XLB was trading at $59.67, I sold one XLB September $60 covered call for $1.70 and I received $168.91 after paying $1.09 in commission.

My cost per share before selling this covered call was $61.66. Now it’s $59.97, which means if the new option is assigned at $60, I’ll leave this trade that takes eight months to play out with $0.03 profit. I’m glad I didn’t sell my shares when XLB was cheaper since the return since then has been pretty good. The mistake, or bad luck, was when I sold the initial naked put on January 30. XLB was trading for $63.03 then and I sold an at the money naked put. There were plenty of other investments I could’ve gone with, but once XLB’s price dropped, I think I made the correct decision to stick with it. The damage was already done by that point.

Even selling the covered call today seems like a good decision. If my covered call is assigned, I’ll earn a 3.39% return, 11.16% annualized from the price XLB was trading when I made the trade. If XLB stays flat, I’ll make 2.92%, 9.61% annualized. It does no good to look at my return from the beginning when making the decision to sell the covered call or not, because I can’t get the price I started with. I can only work from the price that’s trading now. If XLB weakens again, I added an extra 2.82% cushion from the current price, so I can weather further fluctuations. If XLB takes off much higher, I’ll sell a naked put on something new with the expectation that the cash will be available in September to pay for a new naked put assignment. But, I’m getting ahead of myself.

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I pulled out a little gain in May, but my account trailed the indexes for the month. If GS could recover, I’d have a decent year to date return for this market. I need to roll some of my July options early that have already pulled in decent returns and that early roll could help me pick up some ground on the indexes through the summer. Specifically, AAPL and FB could be rolled higher. I’ll be on vacation for a couple of weeks and need to get everything lined up before I take off, so I don’t have to worry while I’m away. I might even buy a SPY hedge if the premiums look cheap next week.

My account ended May with a Net Asset Value (NAV) of $101,669.25 according to Interactive Brokers (IB) after ending April with an NAV of $100,863.62. I had a gain of $805.63 (~0.80%) on paper for May (compared to the Dow’s 1.05% gain and the S&P 500’s 2.16% gain) and had $642.52 in net realized losses from my five closing trades. The $1,690.83 realized loss on my 100 WMT shares and the paper loss I’m still running with on GS hit me hard in May. Other than those two, I did will with closing my FB and IWM puts for a profit of over $400 each. My two other trades were the WMT covered call that I closed early for a $190.72 profit and the GS put that was assigned. I rolled the GS put’s premium into the cost per share of GS, so that’ll show when I sell the shares versus in May.

I received $66.40 in interest ($4.21 more than last month) and no dividends in May. I’ll receive dividends in June for my GS and WMT shares I held when they went ex-div while I held the shares. Quicken reported that I have an account value of $101,459.86, which a penny less than what IB shows due to a rounding difference and the $66.40 in interest accruals and $132 in dividend accruals IB is crediting for me in advance of actually receiving them in June.

I’m only 90.02% invested in this account, 5.40 percentage points above the end of April. With $10,145 left uninvested, I’m not giving myself a full opportunity to take advantage of the continuing bull market. I feel like I’m investing in fear somewhat and on the other hand I feel I’m wise to have cash available and not be overextended before leaving the country for two weeks. Since my divorce, I’ve been able to reestablish my emergency funds account and should be able to get back to taking more reasonable risks in the second half of the year. I only have one option left to expire in June since I won’t be here on expiration day and it’s down to $0.01, which means I need to start aiming for some August expirations and avoid having all of my contracts set for July expiration. I might go ahead and roll FB and AAPL to August since those contracts are already available.

This is my asset allocation in my IB account as of the end of May

– Large-cap ETF: 0.0%
– Mid-Cap ETFs: 0.0%
– Small-Cap ETF: 15.84%
– International: 3.93%
– Individual Stocks & Other Sector ETFs: 70.98% (pretty much large cap really with AAPL, ADI, FB, GS included here)
– Bonds: 0.0%
– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the April’s last trading day, May 31, 2018:

– Dow Jones: YTD change -0.24%, 12-month change +18.91%
– S&P 500: YTD change +2.02%, 12-month change +14.38%
– NASDAQ Composite: YTD change +8.10%, 12-month change +20.30%
– Russell 2000: YTD change +6.90%, 12-month change +20.76%
– S&P Midcap 400: YTD change +3.05%, 12-month change +14.86%

These are my returns according to Quicken (I only made a few trades for the few months leading up to my divorce in June 2017) through the end of May 2018:

– YTD Return: +1.67% (not annualized)
– 1 Year Return: +6.77%

The VIX ended the month at 15.43 and the VXN ended at 16.78. The VIX finished March 0.50 points lower than the end of April. The VXN finished 4.28 points lower. The VIX peaked on May 29, when it hit an intraday high of 18.78. The VXN peaked weeks earlier on May 3 at 21.87. Both volatility measures are not close to extreme readings in either direction, which creates a decent opportunity to sell new options or buy some hedges – or both.

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My Trader's Journal by Alex Fotopoulos - 3w ago

After the last options expiration, I planned to jump right back into naked puts on ADI and FEZ, but I got caught up on working other accounts and this one was pushed to the back burner until today. The good news is that FEZ dropped nearly a dollar and a half from its intraday high on Tuesday. Waiting another three days helped me use a lower strike and get a better premium to further reduce my risk. Now, I just have to hope the price decline was short-lived and my little trade works out. While FEZ was trading at $40.40, I sold one FEZ July $40.00 naked put for $1.03 and received $102.33 after paying $0.67 in commission.

The sharp decline in FEZ’s price might make my decision to try to catch this falling knife a bad idea, but I expect support to surface soon. The trend line I drew using the intraday lows from February 9 and March 23 is currently around $39.87 and ascending. I’m banking on it holding support and if it doesn’t, I don’t think it’ll fall below $39.19, the March 23 low. My cost per share will be $38.98 if assigned, so I even have some room for error if my predictions aren’t completely accurate. If FEZ doesn’t drop more than 0.99% more, I’ll make a full profit. It can fall as much as 3.52% before I take a loss. If FEZ fell that much, it would be 6.75% below its intraday high from three days ago and I don’t think it’s going to stay on that path lower. If FEZ remains above $40, I’ll earn a 2.63% gain, 16.86% annualized. With only $3,900 at risk on this trade, I might enter another order at the same strike at a higher premium to see if I can catch a dip or at least lower my average cost some more.

ADI came off its high from earlier in the week too, but I didn’t catch the bottom in it. Yesterday would’ve given me a better return, but today’s trade is good too. While ADI was trading at $94.94, I sold one ADI July $92.50 naked put for $2.30 and received $229.76 after paying $0.24 in commission. ADI is close to the top end of its trading range from the past six months, so I didn’t want to sell the put at the money. I felt I needed the extra breathing room for it to bounce around and possibly even come back into the upper $80s before rebounding.

Even with my ADI naked put being almost $2.50 out of the money, I could still earn 2.55%, 16.35% annualized, if it doesn’t drop more than 2.57%. ADI can fall 4.99% before I lose any money, which is a decent buffer from taking a loss on the ebb and flow of the stocks normal movements. My cost per share would be $90.20 if the option is assigned. I don’t think ADI will fall below $87.50 based on the trend lines I’ve drawn. Actually, I don’t think it’ll fall below $89.00 in the near-term. I believe in the longer-term outlook for the stock, so a temporary paper loss wouldn’t scare me out of the stock unless the story changes.

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I had a mixed options expiration for May. While two of my naked puts finished with a full profit, the third contract lost more than I gained on the first two. My one IWM May $159 naked put expired worthless and since it wasn’t close to being assigned, I left it to devalue without closing it. My one FB May $160 naked put was in the same boat. It was even further from being assigned, which is why I sold its replacement a week ago. On the downside, my one GS May $265 naked put is nearly $27 in the money and will be assigned this weekend.

My realized gain on the FB May naked put will be the full $424.32 I brought in on March 21. The realized gain on my IWM May naked put will be $434.37, the full amount received on March 16. My beating on the GS naked put will be reduced by the $784.31 I received from the put on March 16. This amount won’t show in my gains for the month because I’ll roll it into my price paid for the shares. It’ll show when I sell the shares eventually.

To help cut the cost of my GS cost per share, I sold a covered call this morning, knowing I’d own the shares on Monday morning. While GS was trading at $238.08, I sold one GS July $245 covered call for $5.15 and received $514.32 after paying $0.68 in commission. I almost went for the $250 strike, but I wanted to lock in more premiums versus hoping GS would climb above $250. If it stays below $250, but the covered call is in the money, I might roll it out and up, but could go ahead and take my overall loss and move on. I think GS will recover before the end of the year, but it’s definitely showing weakness for now and is in the middle of its descending trading channel. Based on this channel, I might regret selling the strike as high as I did. Best case, GS rallies and I take a loss overall, but gain another $1,200 from today’s price, including the premium.

After dealing with GS, I moved to my IWM position. While IWM was trading at $162.00, I sold one IWM July $161 naked put for $3.11 and received $310.32 after paying $0.68 in commission. I hesitated to sell this put or at least second guessed selling the strike as high as I did since IWM is up $13.68, 9.2%, from its April 2 intraday low. In fact, IWM is trading at an all-time high today. That’s not where I like to sell puts usually. I prefer to catch a bounce when possible.

If IWM stays above my strike, I’ll make 1.97%, 11.23% annualized. I wanted to be above a 10% annualized return, so I didn’t sell a lower strike. However, I have a cushion of only 2.56% before I take a loss on weakness in the small-cap sector. I decided to go ahead and sell this put rather than wait for another price correction since I’m not fully invested in my account right now. If IWM drops, I still have some cash available to buy more IWM or another position at a reduced price. If IWM stays flat or climbs, I’ll be happy I didn’t delay my trade while waiting for a better entry point.

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My Trader's Journal by Alex Fotopoulos - 1M ago

Last week, I mentioned that I planned to close my WMT position consisting of 100 shares of WMT and one out of the money covered call. I entered a limit order at the end of the week to sell my shares and buy my covered call when the time value dropped more. I didn’t expect the value of WMT to rise much this week before the option expired so I short changed myself a little for what I could’ve earned – maybe. Right at the beginning of trading, my order hit and I sold 100 shares of WMT for $83.91 and bought to close one WMT May $87.50 covered call for $0.96. I received $8,295.14 after paying $1.99 in commission.

WMT made it as high as $84.79 before cooling off some into the close to finish the day up $0.95 from the previous close. I really don’t like that I paid $0.96 for a covered call that was more than $3.50 out of the money with only five days left on its life. That’s the risk of placing a limit order like this one. In hindsight, I should’ve just waited out the week, but my fear was that the share price would keep dropping and I’d end up with even less. That’s investing though. You never really know what’s going to happen the next day and can only work with the knowledge you have.

As I write this update after hours, the bid/ask for the same trade is $83.39/83.46, above the $82.95 I sold the combo for. $45-50 is not enough to be upset about. It’s the potential of where WMT could go the rest of the week that is making me second guess my trade. Even if WMT stays flat from here, I paid $96, plus commission, for something I probably didn’t need to. More than worry about the price I sold at today, the real mistake was not getting out earlier when WMT went out of favor. I’ll try to learn from this mistake and not repeat it. I ended up with a realized loss of $1,506.36 from the series of trades that included an assigned naked put, the shares, and a covered call. I did make money on the covered call, but WMT fell more after I sold the call than the amount I made.

I do like having WMT out of my portfolio now, so I can focus on what’s working versus what’s costing me. The next two I need to deal with, aside from replacing WMT, are my GS and XLB paper losses. Both have seen steady gains over the past week and a half or two, so I’ve hesitated to sell covered calls just yet. I’m planning to make GS work out for a profit, but doubt I’ll have the same ability to work it out for XLB, unless I extend my covered all out until September.

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My one FB May $160 naked put is more than $25 out of the money and trading with a bid/ask of $0.02/0.03. I thought about buying it back as I rolled the contract out until July, but I opted to save $4 (including commission) and simply sell a new put rather than write this as a calendar spread combination. I’m still bullish on FB, just as I was the last time I sold a naked put on the stock in March. This time, while FB was trading at $186.56, I sold one FB July $180 naked put for $4.25 and received $424.32 after paying $0.68 in commission.

When I sold my May naked put, FB was trading at $172.44 and I brought in $4.25 in premiums then too. The stock was only a few days into its decline when I made the previous trade and volatility allowed me to sell at the same price. Now that FB has recovered and is still ascending, I had to raise my strike $20 to earn the same income. That means my return won’t be as good, but also the perceived risk is lower. The risk is actually higher now since my cushion from a loss is only 5.79% versus 9.67% last time, but with FB in the middle of a rally, it feels less. What it feels like is irrelevant, which is why I’m pointed out the difference.

If FB stays above my $180 strike, I’ll earn 2.41%, which is 12.43% annualized. I need FB to fall no more than 3.52% to allow a full profit on the trade for me. I wouldn’t be surprised to see a 3.0 – 3.5% retracement since the push higher has been so steep, but I don’t think FB is going to collapse again in the near-term. If it does, I’ll view it as a buying opportunity again.

I chose the $180 strike because it puts my cost per share if assigned at $175.76, just above the current 200-day moving average of $174.77. All moving averages from the 10-day through the 200-day are rising and each one could offer support on weakness. The 200-day moving average has been support and resistance for FB a few times since February and the 50-day moving average ($170.39 as of today) has been even more influential. I used the higher level of potential support for two reasons. First, I wanted a better annualized return. Second, if FB does drop as low as its 50-day moving average, an 8.67% decline, I expect it to reverse and only leave my option in the money for a few days to weeks.

I drew a trend line from the July 13, 2017 intraday low that touched the intraday lows on September 25, 2017, February 9, 2018, and May 1, 2018. That line is around $171 now and should provide support if my higher trend line (currently at $175) doesn’t hold support first. The higher trend line began with the intraday high from July 19, 2017 and then became support multiple times since then and was resistance as recently as March 21, 2018. I see this trend line as being an accurate trajectory of FB’s path higher and while it might lose support, I expect FB to rally back towards it.

I considered waiting for the next pull back on FB and maybe I should have, but I’m comfortable owning the stock if my timing doesn’t work out as planned. I thought the same for WMT and it has cost me roughly $2,000. I plan to exit WMT when my covered call expires or gets a little cheaper. I’m down over $1,400 on my GS naked put too, but GS has recovered substantially (up $15 from its intraday low last week), and I think I’ll be able to work my way out of it with a profit with the help of some covered calls through the summer.

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I pulled out a gain in a relatively flat month. It wasn’t much, but better than the major indexes. I had realized gains on only two positions, AAPL and NFLX options and have paper losses that will hit in May, unless I accept the option assignments and write covered calls to delay the pain. That’s probably what I’ll do, aside from my XLB shares that were already assigned. I need to either write a covered call or just sell those shares and move on.

My account ended April with a Net Asset Value (NAV) of $100,863.62 according to Interactive Brokers (IB) after ending March with an NAV of $100,094.66. I had a gain of $768.96 (~0.77%) on paper for April (compared to the Dow’s 0.25%% gain and the S&P 500’s 0.22% gain) and had $1,562.05 in realized gains from my two closing trades, $1,161.35 on NFLX and $400.70 on AAPL. My GS naked put is down roughly $2,000 and still falling. It will find footing, but I don’t know when. I still like its longer-term outlook and want to stay with it and will sell an out of the money covered call sometime before the shares are assigned, unless it is assigned early.

I received $62.19 in interest ($23.71 more than last month), but no dividends in April since I wasn’t long shares of any stocks or ETFs. Quicken reported that I have an account value of $100,799.88, which the same as my IB balance after adding in the penny that was off last month and the $63.74 in interest accruals IB is crediting for me in advance of actually receiving them in a few days.

I’m only 84.62% invested in this account, 24.22 percentage points below the end of March. I opened up a lot of dry powder by not replacing my NFLX naked put, but also appear to be missing out on further gains with the options on the same stock. With days like today that have the Dow down over 300 points, I’m content to be patient and look for a better opportunity to sell my next put while not risking going on margin in a continued sell-off. If stocks fall much more, I will consider going on margin when I see a reversal starting, but only if I like the story that goes along with the reversal. I only have around $360 in time value left for my May options and $600 for my July AAPL naked put. I do have a lot of intrinsic value, really more than I like to have, in my open positions. That means that if stocks can recover in the near-term, my account will do well too, but if we continue to slide lower, I don’t have much cushion at all.

This is my asset allocation in my IB account as of the end of April:

– Large-cap ETF: 0.0%
– Mid-Cap ETFs: 0.0%
– Small-Cap ETF: 15.77%
– International: 0.0%
– Individual Stocks & Other Sector ETFs: 72.99% (pretty much large cap really with AAPL, FB, GS, and WMT included here)
– Bonds: 0.0%
– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the April’s last trading day, April 30, 2018:

– Dow Jones: YTD change -1.63%, 12-month change +18.09%
– S&P 500: YTD change -0.38%, 12-month change +13.27%
– NASDAQ Composite: YTD change +2.36%, 12-month change +16.84%
– Russell 2000: YTD change +0.78%, 12-month change +11.54%
– S&P Midcap 400: YTD change -1.03%, 12-month change +9.77%

These are my returns according to Quicken (I only made a few trades for the few months leading up to my divorce in June 2017) through the end of April 2018:

– YTD Return: +0.86% (not annualized)
– 1 Year Return: +6.50%

The VIX ended the month at 15.93 and the VXN ended at 21.06. The VIX finished March 4.04 points lower than the end of March. The VXN finished 5.62 points lower. The VIX peaked at the beginning of April, on the 2nd, when it hit an intraday high of 25.72. The VXN peaked on the same day at 31.6. Both volatility measures are off their mid-month lows and are trending higher again which might keep me towards the sidelines before I sell new naked puts again soon.

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I came into today’s options expiration with only two naked puts in place, one AAPL April $165 naked put and one NFLX April $235 naked put. APPL was nearly $14 out of the money earlier this week, but got hit hard the past two days, which helped me tremendously. Since I expect this decline to be temporary, the $13 price drop that brought the stock’s price to within a dollar of my strike actually benefited me by raising the premiums for the new put I sold. While AAPL was trading at $165.75, I sold one AAPL July $165 naked put for $8.05 and received $804.31 after paying $0.69 in commission.

AAPL traded as low as $165.59 before I entered my trade and I decided that its 200-day moving average at $165.53 might hold support and keep AAPL from collapsing. I debated selling a June put instead of the July put, but I wanted more premium to cushion its fall if it did break support. I figured any price drop will likely occur in the next few days or weeks, so the risk is more short-term than long-term probably. Since I was banking on the 200-day moving average to hold support, but also didn’t want to just buy the shares and take a bigger risk, I opted to sell the at the money put.

AAPL can drop another 5.31% before I lose any money, but it can only lose 0.45% for me to take a full profit. The good news is that if it works out for me, I will have a 5.12% return, 19.89% annualized. If the July option is assigned, my cost per share will be $156.96. This cost per share is one reason I picked this strike and expiration. The trend line I drew using the intraday lows from April 2017, June 2017, July 2017, and February 2018 line up to show potential support around $157-158. Worst case, I think AAPL could fall as low as the February 9 low of $150.24 and then bounce above my cost.

It might have been smarter for me to go ahead and close my April $165 put when I sold the July $165 put, but I opted to take the risk and wait to see if AAPL would push higher before the close. What I didn’t consider when I made this decision, was that I wasn’t going to be at my desk for the final 45-50 minutes of trading. The April put was trading around $0.18-0.20 at the time I sold the July put, but the bid/ask started rising after my July trade went through. I stuck to my gut feeling about the moving average support and entered a limit order for $0.05 to hit if AAPL didn’t plummet after I left my office. I ended up watching the price at every stop light I came to, just in case I had to pull over and change my limit order. Finally, while AAPL was trading at $165.95, I bought to close my one AAPL April $165 naked put for $0.05 and paid $5.67 including $0.67 in commission. I decided it was smarter to leave an order in for a nickel and give up $5-6 than risk AAPL ticking below $165 in the final minute or two of trading and cost me an assignment after I already sold the new put for July. Closing this trade gave me a realized gain of $400.70.

My NFLX position was easier to deal with since NFLX was trading around $329 as I wrote this part with just over an hour to go in the trading day. I’ll have a realized gain of $1,161.35 and will wait to see what I replace it with until next week. The July puts aren’t available yet for NFLX and the June puts are too cheap. I might have to venture into something new or multiple new positions. As opposed to my AAPL April naked put where I sold the ideal naked put to earn a full profit with nothing left on the table, I could’ve sold my NFLX strike $90 higher. That’s insane to think about how fast it has grown. The P/E ratio and low premiums makes it a stock I won’t be chasing at this point, but on the next heavy pull back, I can see getting back into it possibly if the price drop doesn’t seem warranted.

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The chart below shows the weekly prices for the past three years on SPY, the SPDR ETF that tracks the S&P 500 Index, after closing the week at $259.72 on April 6, 2018.

One of the best methods to remove the “noise” of near-term volatility is to stretch a chart to multiple years and switch the bars to weekly instead of daily. By looking at a longer timeline, a chart technician can see if the long-term trend is still intact. I drew four trendlines that cover the past three years on this chart. The top trend line shows the absolute points of higher highs. The next trend line shows the trend line that starts with a point of support that became resistance with exceptions in January 2018. The bottom trend line marks the trend of higher lows that began in the winter of 2016 and held support until last week. The shortest trend line covers approximately seven months, including the February low and the low from this past week.

This short line has become the crucial line of support (circled in blue) for the large-cap index. After breaking below every moving average from the 10-day to the 50-week moving average, SPY needs to find buyers above this short trend line to keep the sell-off from gaining more momentum. If the $255 range doesn’t find buyers, the next stop could be closer to $240 where SPY found support last summer and then as low as $220, an area of temporary support in December 2016. Falling to $220 would mean SPY was in bear market territory, down 23% from its high, and would have given back more than 50% of its gains since its January 2016 low.

After SPY hit an intraday high of $286.58 on January 26, it fell 11.13% to $254.68 on April 2 and finished the week at $259.72, 9.37% off its high. Many technicians viewed this retest of the February low as a mandatory step before stocks could resume the rally that has run for more than nine years so far. Without this double dip, stocks would’ve recovered too quickly and not shaken out those investors with less conviction. While a correction (a 10% decline) feels like the wheels have come off the bus, the reality is that outside of 2017, these moves are a normal part of the market cycle.

The Williams %R indicator predicted the weakness in stocks in January when it fell below the overbought range (highlight in red), but stocks didn’t follow through on the initial weakness. This consolidation period over the past couple of months has left the Williams %R indicator in a state of limbo. The sell signal was obvious, but until the indicator reaches the oversold range and bounces, the buy signal will be harder to call, at least on a weekly chart.

In the bottom right corner of this chart, I circled the weekly volume in green to highlight how few shares traded hands in the first week of the second quarter. This drop off in volume (the lightest week in more than three years) shows the price declines hit the indexes with little conviction. Fewer sellers are can make a bigger difference when volume is low. The losses are real for now, but often not sustained in the weeks that follow. In other words, don’t panic over price decline that has few sellers driving it.

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