S&P 500 2612.62 -45.93 (-1.73%) Dow 30 23857.71 -344.89 (-1.43%) Nasdaq 7008.81 -211.74 (-2.93%)
The rebound on Monday didn’t last long. Today, the markets tanked again dragged down by technology stocks. So far 200 DMA holds but the more often we knock on it the more likely we break down. Also, the markets are now creating lower highs. Technically, this is a problem.
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What I expected on Friday came on Monday. A significant bounce. But will this turn into a recovery or is it a dead cat bounce for further selloff? I do not know and cannot predict. However, given the markets erratic behavior and fast reactions this may turn into a recovery.
We did a few trades today to take advantage of a rally plus some rolling. It was successful. We received nice credit and rolled some SPX trades lower. However, I have a hunch that it would be wise to stay aside and get a clear signal from the market where are we actually going from here.
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Yes we survived one potential catastrophe from FED but Trump makes sure we have another coming. His tariffs on China sparked enormous fear on Chinese retaliation and we sold off heavily.
With tariffs, we are in fact cutting a tree branch underneath ourselves. It will not help the US. It didn’t in the past and it will not help today either.
When a selloff like this happens and you get caught with trades now against you you the best thing you can do is wait it out. Do not trade it do not adjust trades unless you must (for example expiration is near). Wait and do nothing. When all this settles the trade will improve and most likely you will be rolling at a better situation.
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FED raised rates today and signaled more to come (although as not as many as spooked investors feared) and nothing happened. The world didn’t end, sky didn’t fall, the Universe didn’t collapse, and spooky investors can finally move on and fear something else.
Today, I again was busy with other stuff and couldn’t do trading. Only two open trades closed for 0.05 debit (with almost a full profit). When I open a trade and that trade executes, I immediately place a closing trade as GTC order for 0.05 debit (or as per our strategy) to automatically close any trade once the options price reaches the limit. Then I can forget that trade (sort of).
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As posted earlier I identified a support at 2700 level (or around) and today, the market held that level although the trend was gloomy. I expected more turmoil in regards to FED (which is still coming on us) and Trump’s tariffs (this still can come back and spook the investors who already crapped their pants enough this last two weeks).
For our funds, trading was slow today. I was busy with other things and also wasn’t in mood of trading. So I decided to skip it. I did only a handful trades today, and I bought a new dividend aristocrat to our portfolio
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Today we saw another fairly large sell off. If we measure it by 2017 market standards of doing pretty much nothing but going up.
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In our trading group a trader posted this question:
“Why you might do a 0-1 DTE trade on SPX vs a longer period such as 15-30 DTE…along with the associated logic of the strike selection.”
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Everybody is going bearish these days and our economy and politicians are not helping much. Retails saw three consecutive months of slowing sales and tomorrows data will probably help sinking this market lower. Trump fired another of his advisers (as I read on Investing.com: making this Presidency a joke) and futures sold off.
However, among all this weakness, the market overall still holds 50 day MA and it still is on its path higher. But practice caution as all this may change quickly (as quickly as tomorrow).
Even with all the weakness and selling we made great income today. Most of the time I rolled put spreads away and lower and kept selling call spreads. I still must exclaim: I love this volatility as it brings a lot of opportunity to make money. The catch is, many of the trades are still open and all premiums we collected so far can evaporate if we will not manage those open trades properly.
More and more stocks are becoming cheaper these days and as more selling hits the market more good quality stocks will be cheaper to buy. I stick to dividend growth investing strategy, use 50% of the options trading proceeds to buy dividend aristocrats. I am happy to see this weakness in the market as I can now buy stocks such as Boeing (BA) which is shown as undervalued. Check our list of stocks our system indicates as a good buy.
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