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Proactive Spreads, March 27th, 2017 – JPM

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Stocks are set to gap down a little more this Monday morning.

As for the reasons why… honestly, it doesn’t really matter.

The market hadn’t had a decent pullback since November. After we saw some profit taking, then our lizard brains began to attach a “reason” behind it, because simply saying “profit taking and rebalancing” doesn’t make for a good story.

So the main driver we’ve anchored on here is US legisltative voodoo. Whether or not this is actual market moving news doesn’t matter. This is behavioral finance 101.

Right now, I think the market needs to punish the early dip buyers, and that’s probably what is going to happen. This pullback really hasn’t been a big one, and a 5% move off the highs would take us to 2300 which would be a much better “stretch” target.

Trade #1: JPM

The early dip buyers of large cap financial stocks should be punished here. When we have a volatility pivot (big downside move) like we did the past week, it rarely is a one-off event. If we can get one more shakeout to the low 80’s then we’ve got a great risk-reward setup.

Trade Setup

Expected Price: 82.50

Sell to Open JPM May 77.50/75 Put Spread

Tier 1: Open at 0.35, Close at 0.10

Tier 2: Open at 0.50, Close at 0.35

Tier 3: Open at 0.70, Close at 0.50

Disclaimer

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