After waiting what seemed like an eternity, the market finally broke out of its super tight range last week. Dow 20k was hit which made headlines across the US.
Don't discount psychological reflexivity. Humans have a tendency to assign weight to symbols like whole numbers, even if they don't mean much in terms of the fundamentals of the company. But the fact that we make it matter... it becomes a self fulfilling prophecy. Odds are financial advisors got a bunch of calls last week asking why their client's portfolios weren't overweight stocks. This could, potentially, lead to a pile-on effect.
With that said... the way the market breaks out will not be the same kind of move compared to what we see in individual stocks. The liquidity is different, and we actually have higher odds of reversion. Odds are, at some point the lower end of this trading range will be tested to shake people out.
Don't believe it? Go pull up a chart of the SPX during the massive bull rally that we saw in 2013-2014 and look at how th emarket traded once it made a new marginal all time high. Most of the time, lower levels were retested once before the market moved higher.
In terms of gameplan, it remains the same. Volatility is low, which means correlations are low, which means we'll continue to see rotation in and out of different sectors and stocks.
Trade #1: GOOGL
Earnings came out on Friday's open, and while there was an initial push higher it appears that the breakout has failed. I'm expecting a small round of disappointed sellers to come back in as we test previous support levels and moving averages. The overnight lows are right around 830 and I"m looking for a push just underneath that.
Expected Price: 820
Sell to Open GOOGL Mar 770/765 Put Spread
Tier 1: Enter 0.60, Exit 0.20
Tier 2: Enter 0.90, Exit 0.60
Tier 3: Enter 1.20, Exit 0.90
Trade #2: TXN
Earnings already out for this stock, and it broke out above 75 which had been a clear resistance level since November.
Look for the retest of 75 to start initiating a position. It won't take much to get there, simply a handful of sellers that are taking profits.
Expected Price: 75
Sell to Open TXN Mar 70/67.50 Put Spread
Tier 1: Enter 0.30, Exit 0.10
Tier 2: Enter 0.45, Exit 0.30
Tier 3: Enter 0.60, Exit 0.45