An oversold bounce is due

Charles Sachs has utilized S&P 100 for the past 14 years, both as a trader and an advisor. He uses 24 proprietary indicators in order to structure options strategies which can generate gains whether the market moves up, down or sideways.

While the S&P 100 (XEO | Quote | Chart | News | PowerRating) index has declined sharply over the past month, the chart below gives a longer-term and slightly different perspective of what is happening in the stock market presently by going back over the past year and a half.

In looking at the chart below, we see that the XEO index moved principally between the 545 and 580 levels in 2005. With the index currently at the 560 level, the index is around the midpoint of its prior trading range. This would suggest that if the XEO index were to decline further, it would find very strong support at the 545 level.



Additionally, it is worth noting that the XEO index was trading at the 560 level in December of 2004 and is currently trading at that level as well. In other words, nothing has happened in financial markets over the past year and a half.

Options have the unique characteristic of being able to earn profits when the security underlying the options sits still by using the time depreciation characteristic of the options. This means that by selling options, one can profit when financial market conditions are static as they have been for over a year.

Using the time depreciation characteristic of options, our recommendations have accrued over 140% in profits (excluding brokerage and subscription fees) since July 2004. We have achieved these results while financial markets have been essentially unchanged.

Bottom Line:

Very little has happened in financial markets for an extended period of time. In the short-term, financial markets are oversold so we would expect financial markets to rise in price. On any further decline, there is extremely strong support for the S&P 100 index at the 545 level.

Sincerely,
Charles Sachs
Editor
www.PatientTrader.com