The market is running a little hot here. After a rug pull a week and a half ago, the S&P has roundtripped back to all time highs, and then some.
There is a tendency for stock indexes to retest the most recent breakout point after making new all time highs– just a normal mechanic, and I wouldn’t be surprised if we saw that come into play soon. I’m not expecting some kind of crash, but a correction is very possible here.
In terms of sentiment, risk appetite is nearing extremes. Traders are playing fast and loose with upside moves, and have been rewarded when any small dip is bought. The Market Gods are fickle gods, and they will not take kindly to any further hubris from people. This week has felt like an “echo” of the GME illiquidity shock, and many of these high-risk names will show how lack of liquidity runs both ways.
Right now, the risk favors the bearish side. I’ll be looking to be more bullish once some of these names offer better risk/reward, and once we get out of earnings season for many of these stocks.
Trade #1: SPY
SPY is on its third pivot high with lower highs in the RSI– this signals a momentum divergence. That doesn’t guarantee that the market is going to take a massive dive, instead a normal correction should be expected– either through price or time.
The index is also up about 3.5% from the pivot lows 8 trading days ago. We have seen higher readings, but they tend to come off of oversold markets or catalysts (see post-election).
Trade Setup
Expected Price: 390.8
Sell to Open SPY 19Mar21 404/407 Call Spread
Tier 1: Enter at 0.77, Exit at 0.39
Tier 2: Enter at 1.078, Exit at 0.68
Tier 3: Enter at 1.386, Exit at 0.92
Stop Out If Close Over 190.95
Trade #2: IBB
Biotech is up 7% in 7 days, which is a good stretch statistically. Many names underneath the surface in this index have been running hot, and as the index comes into the rising trendline resistance, I’m looking for sellers to show up and for IBB to take a rest.
Trade Setup
Expected Price: 171.68
Sell to Open IBB 19Mar21 175/180 Call Spread
Tier 1: Enter at 1.06, Exit at 0.39
Tier 2: Enter at 1.484, Exit at 0.77
Tier 3: Enter at 1.908, Exit at 1.03
Stop Out If Close Over 190.95
Trade #3: GOOGL
GOOGL reported nice earnings, and I want to be involved when a gap fill attempt is made.
Trade Setup
Expected Price: 1987.31
Sell to Open GOOGL 19Mar21 1890/1880 Put Spread
Tier 1: Enter at 2.09, Exit at 0.74
Tier 2: Enter at 2.926, Exit at 1.5
Tier 3: Enter at 3.762, Exit at 2.01
Stop Out If Close Under 190.95