We’re starting to see some divergences in the market. It’s not a massive warning signal, just that some areas need to cool off. SPX still looks fine as long as it holds 3650 and may just start to chop around as we head into the end of the year.
The index that gives me the most concern is the R2K. It’s stretched by any historical standard. I started getting bearish and cautious on smallcaps about 3 weeks ago, as I thought a fiscal deal would become a “sell the news event. Yet I think we are close enough to a correction in the R2K to get short the index.
Trade #1: IWM
This is the Russell 2000 index. It’s overbought. It has spent 33 days above its 10 day moving average, which is something that has happened 3 other times over the past decade. We don’t need a crash, just some sideways action.
Trade Setup
Expected Price: 195.85
Sell to Open IWM 15Jan21 205/208 Call Spread
Tier 1: Enter at 0.67, Exit at 0.27
Tier 2: Enter at 0.938, Exit at 0.51
Tier 3: Enter at 1.206, Exit at 0.69
Stop Out If Close Over 205.11
Trade #2: GOOGL
Looking for a gap fill as tech looks to be a bit weak.
Trade Setup
Expected Price: 1678.94
Sell to Open GOOGL 15Jan21 1590/1580 Put Spread
Tier 1: Enter at 2, Exit at 0.64
Tier 2: Enter at 2.8, Exit at 1.36
Tier 3: Enter at 3.6, Exit at 1.8
Stop Out If Close Under 1589.89
Trade #3: BIDU
I’ve already been stung short on this one, yet I think we are close enough for a second shot.
Trade Setup
Expected Price: 206.86
Sell to Open BIDU 15Jan21 230/240 Call Spread
Tier 1: Enter at 1.5, Exit at 0.05
Tier 2: Enter at 2.1, Exit at 0.52
Tier 3: Enter at 2.7, Exit at 0.65
Stop Out If Close Over 230.11