Market Update: Bears 6, Bulls 0

What’s more exciting — what happened today, or what is about to happen?  Let’s start by dispelling the myth that there was hope for bulls today.  Despite it being a choppy day, with plenty of bounces to give bulls who only look at price hope, this was a very bearish day.  I’ll introduce you to the quad display, which includes market internals traders use to see what the market is REALLY doing on the inside.

The critical chart here is the top left one: $VOLD.  It begins every day at 0, and represents the volume of shares that went up minus the volume of shares that went down on the S&P 500.  Each candle is 15 minutes.  This thing can normally change direction when the market changes during the day.  But, not today.  All day, it went down, and down, and then down some more.  There is only one green candle on the whole chart, and you need a microscope to find a wick on any of these candles.  It is rare to see this go down virtually non-stop the entire trading day without the market also doing the same.

S&P 500 Market Internals - The "QUAD"

The next important one is the bottom right.  Unlike the other 15m charts, on this one I zoomed out to 1 hour candles so you can see how it has looked since Tuesday.  Note how choppy it has become.  And the right end, you’ll see that at 8pm, the normal Asia induced drop kicked in to bring it down to new lows of 1963. The Nasdaq 100 futures, by the way, despite being a bit more feisty, dropped very near its morning low of 4386, currently at 4390 and dropping as I type (it just hit 10pm as I took the screenshot, so that last 5 second sliver of a bar is green.)

Nasdaq 100 Futures (10pm)

Nasdaq 100 Futures (10pm)

Yet, while oil has dropped to new lows of 32.77, one bullish chart I shall leave you with is gold, which just temporarily went over 1100 for the first time since November 6th.  you can see it has clearly broken above the nice base it has created since then.

Light Sweet Crude Futures (10:05pm)

Light Sweet Crude Futures (10:05pm)

The Plan

Despite all this bearishness, I’m really hoping for a bounce, or at least a sideways day tomorrow, so I can open a really short-term position to benefit from the next drop, which could potentially happen Friday through Tuesday.

I’m leaning towards a long ITM put spread with limited profit, but lower risk than just buying an ITM put; but haven’t sat down to do any calculations, yet.

For next week, I’m hoping to go long oil, perhaps to take advantage of a bounce off 30, for perhaps a week.  I’ll post options I’m looking at for that, probably this weekend.  That, by the way, can potentially fuel a nice bounce rally in the market with lot of short covering, so I plan to be out of my long volatility position completely by Tuesday.  I took more profits today, and will continue to do so this week into the beginning of next week.

To kill boredom, I’m doing some small plays, including short Feb calls on HYG 82,95 -0,15 -0,18% and short puts on GPRO 4,31 +0,18 +4,36%.  Honestly, despite GPRO looking crazily positive this past week, I’m not too excited to be bullish any stock today.  In fact, while my IRA has been up every day the market has dropped, profits have been limited by the few stocks I have in there being among the few things that have gone down.  But, I played GPRO small, at the 16 and 17 strikes, and am OK if I end up owning a few hundred shares.  I’ll just sell calls right away to collect more premium, further lowering my cost basis, and potentially exiting the position if they get exercised.

HYG is something I’ll likely sell calls in throughout the year, rolling as needed, as that has a medium term downward trajectory.

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About Erik Calco

With a passion for Investing, Business, Technology, Economics, People and God, Erik seeks to impact people's lives before he leaves. Contact Erik
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