When the market transitions from a period of uncertainty to certainty that is where we tend to see strong upside price action.
And we had a pretty uncertain event last week — the US elections.
While things haven’t been completely confirmed with respect to the outcome… we have a pretty good idea of what’s going to happen over the next few months
So when the market narrative transfers from a “Known Unknown” to a “Known Known,” that’s where you get strong movement to the upside
What I didn’t expect this morning was Pfizer coming out and announcing that they had a workable vaccine and that is why we are seeing a strong move to the upside in small-cap stocks, Cov sensitive names, and banks.
The past few months there has been a drastic performance difference between what we will call “work-from-home” stocks and other areas of the market that are much more sensitive to lockdowns
You’ve had things like ZM and PTN do exceptionally well this year while Airlines and cruise ships and banks have not.
Today we are seeing a massive rotation back away from that theme and it sure is something to behold the Russell 2000 Weight limit up in the pre-market while the NASDAQ has continued to suck wind throughout the day
Some of the WFH stocks saw a massive moves to the downside and I think that this rotation is going to continue– and be a pretty good theme as we head into the end of the year
If we continue to get good data from that Pfizer vaccine then the narrative will drastically shift in the markets and we will start to see some of those forgotten sectors in the market start to outperform.
That means we can start looking more at getting long Banks we can start looking more at shorting some of these high flyer momentum names that are richly overvalued.
Trade #1: GLD
After getting everyone’s hopes up about a breakout, GLD sees a massive jam lower as “risk off” isn’t in vogue right now.
Long term trend is still up, and I like buying this support and scaling in through the rising 200 day moving average.
Expected Price: 175
Sell to Open GLD 18Dec20 166/163 Put Spread
Tier 1: Enter at 0.43, Exit at 0.03
Tier 2: Enter at 0.602, Exit at 0.12
Tier 3: Enter at 0.774, Exit at 0.14
Stop Out If Close Under 165.89
Trade #2: PTON
PTON had a mini-crash because gyms are going to open up. It’s a high-growth stock that is seeing a transition in narrative and a breakdowin in technicals. Into retracements I think shorts offer good risk/reward.
Expected Price: 116.34
Sell to Open PTON 18Dec20 140/145 Call Spread
Tier 1: Enter at 0.75, Exit at 0.02
Tier 2: Enter at 1.05, Exit at 0.26
Tier 3: Enter at 1.35, Exit at 0.32
Stop Out If Close Over 141.11
Trade #3: JPM
Financials are seeing massive breakouts, and JPM is the “best of breed” and one of my favorite trading vehicles. I’m treating this move like a post-earnings trade where I am anticipating continued drift higher.
Expected Price: 115.24
Sell to Open JPM 18Dec20 105/100 Put Spread
Tier 1: Enter at 0.63, Exit at 0.05
Tier 2: Enter at 0.882, Exit at 0.05
Tier 3: Enter at 1.134, Exit at 0.05
Stop Out If Close Under 104.89