This entire month could be categorized as this:
Overhedged and underexposed.
Yes, December was bad. A lot of investors got stopped out or blew out of positions when they should’ve been sitting at home enjoying the holidays.
And plenty of other investors used the first sign of a bounce to exit out of stock, or at least hedge.
If everyone has a hedge on, then the market can’t go lower. That’s a market law. And that’s what this market has been all about.
The 2600 resistance held for maybe 3 days. Since then, those who have been in cash or with short gamma on are on the back foot.
Volatility can run both ways: higher and lower.
Nevertheless, this feels like the second squeeze after a hard correction. The second squeeze tends to suck people in and force early shorts to get stopped out or roll their positions. Second squeezes tend to be intermediate term tops.
So yeah, I don’t think 2800 is in the cards, at least for the short term. Much energy has been expended from the Fed news on Wednesday, and we may just settle into a rottional chop fest.
Key levels here are simple: 2600 and 2800.
The longer the S&P 500 holds 2600, the higher the odds that we will break back above 2800.
Trade #1: GLD
GLD has 5 consecutive days above its upper Bollinger Band. It’s overbought, and the resistance from last year in the high 120’s should put a near term cap on price.
Trade Setup
Expected Price: 125
Sell to Open GLD Apr 130/135 Call Spread
Tier 1: Enter at 0.57, Exit at 0.07
Tier 2: Enter at 0.87, Exit at 0.37
Tie 3: Enter at 1.17, Exit at 0.67
Trade #2: BA
Great earnings report, and the stock gapped into its all time high level.
If this were a high-growth tech company, it would’ve already blasted above 400. But it’s Boeing, and if price action from the past year shows us, buying breakouts hasn’t really been a good play due to high reversion.
Instead, I’m looking to anticipate a gap fill– not a full one, just an approach back to the range highs from the fourth quarter.
Trade Setup
Expected Price: 375
Sell to Open BA Mar 340/335 Put Spread
Tier 1: Enter at .70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.50
Tier 3: Enter at 1.30, Exit at 0.80
Trade #3: FB
Looking for a half gap fill after its earnings run.
Trade Setup
Expected Price: 158
Sell to Open FB Mar 145/140 Put Spread
Tier 1: Enter at 0.80, Exit at 0.30
Tier 2: Enter at 1.10, Exit at 0.60
Tier 3: Enter at 1.40, Exit at 0.90