With the relatively short lived market correction now behind us, options trading investors are watching as bullish patterns were setup and triggered over the past week. Momentum stocks the likes of OpenTable (NASDAQ: OPEN), Rackspace Hosting (NYSE: RAX), and Lululemon Athletica (NASDAQ: LULU) have broken out after forming multi-week bases. After exhibiting relative strength during the market freefall, the Energy Select Sector SPDR (NYSE: XLE) has continued its advance higher marching to new two and a half year highs. The iShares MSCI Emerging Markets Index (NYSE: EEM) has also joined in the bullish fray and is on the brink of breaching the highs of a trading range that has been entrenched for six months. That’s some pretty impressive price action given the precarious position of this sector a short two weeks ago.

Since the panic lows of March 16, the S&P 500 Index (CBOE: SPX) has surged an impressive 80 points virtually uninterrupted. While this can certainly be chalked up as a victory for the bulls we’ve reached a position where the market is decidedly overstretched and flirting with a prior resistance level at 1330. Given the current posture of the market traders will likely find it increasingly difficult to identify solid risk-reward setups for new bullish plays.  A time or price correction in the coming days would do the market some good in providing better bullish opportunities. Now’s the time to exercise some patience and wait while the market digests the recent gains and sets up for the next leg higher.

Remember, as traders we’re not just in the business of divining the future direction of the market, we also need to focus on identifying strategic entry points. Rather than chasing many of the stocks that have experienced significant gains, wait for them to consolidate or pullback in price. The risk-reward will be much more favorable after such a correction.

S&P 500 Index Options (CBOE: SPX)

(Source:  MachTrader)

Follow Tyler Craig on Twitter@TylersTrading.