Stocks enjoyed a 7-month winning streak with the S&P 500 rising 26% through July before it finally took a break, declining by some 5%, over the next five weeks.
During this time, the bears seemed to be taking charge, as new low/new high readings showed weakness. As you can see below, the SPDR S&P 500 ETF Trust (SPY) chart broke major support and slipped below the 50 day-moving average. At which point sentiment was shifting increasingly towards the conclusion that at least a 10% correction was in the works.
Then, just as Lucy always snatches the ball from Charlie Brown, the bulls rushed and it took just 13 days to trade up to new all-time-highs.
This market resilience seemed to reinvigorate the risk on trade; tech stocks took the lead but once again we see pockets of speculation with a couple of fresh SPAC’s, most notably President Trump’s related Digital World Acquisition (DWAC) which has jumped more than 900% over the past few days.
And of course there is BItcoin, which has surged to new highs in the wake of the launch of the ProShares Bitcoin Strategy ETF (BITO). BITO, which is actually structured through futures contracts rather than owning the underlying bitcoins, set trading volume records and gathered over $200 million in assets in the first three days.
This renewed enthusiasm comes despite all the concerns which had weighed on stocks last month from inflation, supply chain issues, no resolution for an infrastructure package and the Fed reiterating its plan to begin tapering next month are all still in place.
I too had felt the market was ready to roll over in late September but knowing the market is still awash in liquidity and historical data showing that one the market is up more than 10% during the first six months of the year it tends to finish higher. And indeed, even though October is known for some spectacular crashes, the last three months of the year tend to be seasonally strong.
So, while I danced around with some SPY and QQQ puts for protective purposes I was staying nimble and keeping an eye on set ups to get long some names that looked oversold. Over the past two weeks Options360 took quick profits in Pagseguro (PAGS), Advanced Micro Devices (AMD) and Beyond Meat (BYND) well prior to expiration.
I’m turning a little cautious again. Options360 is now down to just one position, which is bullish in Teledoc (TDOC), keeping light ahead of next week’s busy earnings calendar, which the FAAMG names report. The market has been able to see its way past a variety of challenges this year but it won’t be able to ignore disappointing numbers from the likes of Apple (AAPL) Amazon (AMZN) and Microsoft (MSFT); these companies need to deliver blow-out numbers if the bulls are to remain in control.
Source: Option Sensei
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