The market has been a straight shot higher without any significant reversion since the year started.
Overall, we’re averaging 0.45% gains every single day. If this continues, we hit 3000 before the end of March. I don’t think that’s sustainable.
That being said, the breadth behind this move indicates that a retest of the swing lows isn’t in the cards. Odds are, as we head into the Spring, the market will start to exhibit actual reversion.
Range bound action.
As the S&P heads into the 2800 resistance, I expect some supply to come onto the market. My gut here says that we will overshoot the Oct-Dec highs before seeing the breakout fail. It will be enough of a move to suck in some new buyers and squeeze out the last remaining shorts.
Trade #1: RUT
The Russell 200 index is currently 9% above its 50 day moving average and headed into key price resistance, along with a declining 200 day moving average. This is a good place to scale short with the expectation that, while we won’t crash, we’ll see a pullback and some sideways action.
Expected Price: 1575
Sell to Open RUT Apr 1670/1675 Call Spread
Tier 1: Enter at 0.65, Exit at 0.15
Tier 2: Enter at 0.95, Exit at 0.45
Tier 3: Enter at 1.25, Exit at 0.75
Trade #2: GLD
Looking for a retest of the previous swing lows as well as the rising 50 day moving average.
Expected Price: 123.50
Sell to Open GLD Apr 120/117 Put Spread
Tier 1: Enter at 0.30,, Exit at 0.05
Tier 2: Enter at 0.50, Exit at 0.15
Tier 3: Enter at 0.70, Exit at 0.35
Trade #3: AAPL
Last December, AAPL had a “baby and bathwater trade” where, after a massive decline, they guided down ahead of earnings. When you see a gap down on guidance after a nasty selloff… the bad news gets priced in. That’s what happened with AAPL, and it rallied on earnings.
I expect, along with the other FANG stocks, a range to get knocked out. I want to be bullish here, and then start looking at bearish setups when it comes into the 190s.
Right now, I’ll start scaling into bull put spreads.
Expected Price: 171.07
Sell to Open AAPL Apr 160/155 Put Spread
Tier 1: Enter at 0.77, Exit at 0.27
Tier 2: Enter at 1.07, Exit at 0.57
Tier 3: Enter at 1.37, Exit at 0.87