There’s no guarantee of reversion in this market. The absence of any kind of macro-driven news coupled with the fact that we’re at all time highs… it’s possible that we simply continue without any kind of big dip whatsoever.
Yet… That’s not a screaming signal to “BUY EVERYTHING.”
When this market corrects, it’s very possible that it will be rotational in nature.
Sideways market action with individual sectors churning underneath the surface.
It’s this very mechanism that has allowed us to “buy the dip” in an undippable market.
Just make sure to be super patient.
My thought on this market– investors have been fixated on the outcome of the US election for a few months now. The news headlines that dominate the screens are great for pageviews but do not have the same “oomph” on the market as, say, the spectre of a Brexit.
Soon, investor perception will shift. Believe it or not… there will be fatigue from following the play-by-play of the new administration.
We’ll start looking for that new shiny object to follow and fret over.
My call here– the shiny object will, most likely, be the March Fed meeting. Now keep in mind, it’s not whether we are bullish or bearish headed into the Fed meeting, it’s more about the perception of risk.
Maybe you have a few investors take some profits here… or buy some volatility hedges.
The market makers have to shift their books around to compensate for the new long deltas they picked up… and they go out and short some futures to hedge.
Soon enough, the market dips… not because of any actual news, but because of “normal” behavior by rational market participants.
But we have to have a meaning behind the move.
So we slap on an explanation as to why the selling is coming in.
It will probably be the Fed meeting.
Now what will happen next is that less-rational market participants may use that news as an excuse to take profits or get stopped out of a few positions.
If this snowballs a bit, you’ve got a tried-and-true pullback in the markets. Expect that to hit over the next few weeks, and we’ll bottom out about a week before the Fed meeting which lines up nicely with March options expiration.
We don’t always need a crystal ball like this, but this kind of context is needed to make sure we aren’t going ALL IN with our spread sales.
Pick your stocks, pick your prices, and let the trade come to you. Now is not the time to force your way into anything new.
Trade #1: TSLA
Getting hit hard on earnings. Looking for a bounce, then a new lower low down to the rising 50 day moving average.
Trade Setup
Expected Price: 250
Sell to Open TSLA Apr 215/210 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.70
Tier 3: Enter at 1.30, Exit at 1.00
Trade #2: HAL
I’m expecting a deeper correction in this stoc, back to the gap fill level at 50.
Trade Setup
Expected Price: 50
Sell to Open HAL Apr 45/42.50 Put Spread
Tier 1: Open at 0.30, Close at 0.50
Tier 2: Open at 0.50, Close at 0.30
Tier 3: Open at 0.70, Close at 0.50