In December, the market continued to sell off further and faster than what the majority thought.
Why, then, does it come as a shock to so many market participants that the rally has also squeezed, further and faster, than what the majority thought?
The S&P retook 2600 — key support from Fall 2018 — with no hesitation whatsoever. Until that character changes, it will be very difficult for the market to rollover
An attempt at a retest isn’t a terrible idea, and generally that’s what happens.
It just tends to take longer than what most people thing. You need a full options expiration cycle to burn off all that premium that hedgers bought in anticipation of the rollover.
The gameplan here is to start following relative strength.
We just spent a few months of a macro-dominated market where all stocks moved on the same conveyor belt with no reversion whatsoever. I’m calling a top on that theme. Expect more reversion, and expect more rotation in this market.
Trade #1: LULU
This stock has been on a tear since the sales numbers came out earlier this month. The 150’s *should* bring in some sellers as the previous support from September comes into play. I’d like to see a gap fill and a little push lower to get involved.
Expected Price: 142.30
Sell to Open LULU Mar 125/120 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: PYPL
One of the strongest stocks in the market. It has earnings coming up, so I’ll play it if it tests the previoius resistance levels from Oct-Dec.
Expected Price: 87.34
Sell to Open PYPL Mar 77.5/75 Put Spread
Tier 1: Enter at 0.35, Exit at 0.05
Tier 2: Enter at 0.50, Exit at 0.25
Tier 3: Enter at 0.65, Exit at 0.40
Trade #3: GLD
Gold is still incredibly strong given how hard everything else has reverted. There is some confluence at 120 that I want to be involved with.
Expected Price: 120
Sell to Open GLD Mar 117/114 Put Spread
Tier 1: Enter at 0.32, Exit at 0.05
Tier 2: Enter at 0.47, Exit at 0.22
Tier 3: Enter at 0.62, Exit at 0.37