Double Top?

(Click to enlarge, use the "Back" key to return to the blog.)

Well Traders, most of what we do when we create charts is estimate. With our own biases, we do our best to see what the chart is showing us, and somehow put that into an analysis that makes sense to us. Sometimes we see things that just aren't there, or we see things we hope are there. in any case, it is always an inexact science.

Today, I see what may be a "Double Top" formation, albeit a weak one. I have circled the two "tops" in orange to highlight them. The formation, if valid would indicate that an absolute top (for the time being) has been reached and that the market will fall off from here. That may or may-not occur, but again, charting is an inexact science.

As you see, the $NDX is becoming somewhat range-bound, which for an Iron Condor is a beautiful thing...assuming it remains range-bound. Since the range is in such a tight timeframe, I am very hesitant to use it ($1,824 - $1,761) at this time until more time elapses and the undex continues to be rangebound. Even then, you still always play smart.

I have not placed a January trade yet; still waiting on some feedback from my mentors regarding this play. You will see the highlighted areas in which I name my Bear Call and Bull Put spreads for the trade. Right now, it doesn't look like it would make much money, but an Iron Condor isn't supposed to at first. When played correctly, it is a way to make some decent income without the risk of say, a directional option. That being said, the narrower a trading range, the more profitable an Iron Condor can be, so I would LOVE to see a fairly tight and predictable range develop here for a few months. By March/April, I am sure the "Sell in May and go away" clause will initiate and I may look at only Bear Calls to take advantage of a usualy predictable pre-summer falling market.

Happy Trading!