This past Friday was a mirror of the Friday before. Instead of seeing a parabolic trend higher and finishing near the highs, we finally saw downside action and a strong trend day to finish out the week.
Personally, this is a relief. I don't enjoy markets that have a low volatility grind higher without shakeouts every once in a while.
It's very possible that the market is going to revert to a pre-2017 market. More volatility, more pullbacks. Higher reversion.
The pundits will claim that it's an end to the bull market... but if it does happen, it's a normalization of volatility. The market we've seen over the past few months are the "abnormal" group.
The pre-2017 playbook tells us... the low is not in. This is a volatility pivot and we'll see a lower low with a momentum divergence. I don't think that we'll completely lose the gains for the month.
One more thing... I would be very hesitant to attach political reasons to this selloff. I know that's what the current noisy news sources are screaming. Yet we were massively stretched to the upside, and you had ugly earnings from GOOGL and AAPL. That alone is good enough for profit taking to come in pretty aggressively.
Time to start selling put spreads into pullbacks.
Trade #1: GOOGL
Hard gap down on earnings, look for the second extension to previouis resistance and a rising 50 day moving average.
Trade Setup
Expected Price: 1080
Sell to Open GOOGL 1005/1000 Put Spread
Tier 1: Enter at 0.60, Exit at 0.10
Tier 2: Enter at 0.90, Exit at 0.40
Tier 3: Enter at 1.20, Exit at 0.70
Trade #2: V
Looking for a pull into the rising 50 day moving average and previous pivot support from January.
Trade Setup
Expected Price: 118
Sell to Open V Mar 110/105 Put Spread
Tier 1: Enter at 0.60, Exit at 0.10
Tier 2: Enter at 0.90, Exit at 0.40
Tier 3: Enter at 1.20, Exit at 0.70
Trade #3: RUT
The smallcap index didn't really run with the rest of the indexes-- this is due to the fact that much of the movement in the Dow and S&P were driven by very large cap stocks like BA and AMZN.
RUT isn't in a terrible place technically, it could trade to 1,500, but I think it will slow down before that before turning up and establishing a new range. Any extension based off Friday's lows is a good entry point.
Trade Setup
Expected Price: 1,537
Sell to Open RUT Mar 1450/1440 Put Spread
Tier 1: Enter at 1.40, Exit at 0.40
Tier 2: Enter at 2.00, Exit at 1.00
Tier 3: Enter at 2.60, Exit at 1.60
Trade #4: IBB
Biotech down 5% in 5 days, with a gap fill. I want 110 to get in.
Now IBB did a split recently, so the strikes we are going to look at are a little goofy. The spread is still 5 wide so the risk/reward is consistent.
Trade Setup
Expected Price: 110
Sell to Open IBB Mar 103.33/98.33 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.50
Tier 3: Enter at 1.30, Exit at 0.60