The Bears Are Back!

The top callers have crawled out from under their rocks again.

Bears are taking to the streets following last week’s tumble, ready to declare an end to the comeback rally that has miraculously lifted stocks back toward all-time highs.

You can probably guess where I stand…

Picking tops or the exact moment the stock market turns is IMPOSSIBLE. Take it from me — in my 30 years trading, I’ve never seen a single analyst, pundit, or trader who can call market tops with any consistency.

Let’s stick with the facts. The tech takeoff has rocketed 50% off the lows, posting a new high Wednesday before the profit-taking pullback. You have to put this move in perspective! We just enjoyed a nearly straight-up rally for three months against the backdrop of never-ending bad news.

Looking beyond the tech boom, our broad market barometer — the S&P 500 — erased all of its losses for 2020 just last Tuesday before the downturn. A higher weekly peak is always a positive sign that we can’t ignore.

As options traders, we don’t’ need to make any rash decisions. We have time on our side — time to be right and ride out any of the market’s unkind unwinds.

Remember: Don’t worry too much about how the market acts on big moves. Instead, concentrate on how the market reacts and follows through (or fails to follow through) on the ensuing action.

One day does not make or break a market…

Meanwhile, I’m still in Chicago for a while. I was waiting to get back on the trading floor for the big reopening — but now the CBOE has decided to only open for floor traders. I might not make it back into the building until August the earliest.

You see, bad market news isn’t the only trouble we’re reading about in the city these days as protests have disrupted activity in the Loop and caused multiple closures near the CBOE building — hence the new delays.

But from my vantage point, the city looks like it’s doing a bit better…

city street

The boats are still afloat downtown…

I’ll be keeping a close eye on the markets — and I’m sure I’ll have more to report soon. Stay tuned for an update later this week…

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Shenanigans

Greg GuenthnerThe selling was ferocious last Thursday as the major averages endured their worst trading day since the depths of the coronavirus crisis back in March.

But as Alan has noted time and again, it’s important to put these moves in perspective.

Before the Thursday swoon, the S&P 500 had rallied an improbable 45% off its March lows. I know it feels like a lifetime— but we registered these lows only 12 weeks ago. Throw out all the financial news headlines. The market was just too frothy. Something had to give.

Now that the market gods have put some of the speculators through the ringer, we can begin to pick up the pieces and determine our next moves. Friday morning, I talked about how Netflix Inc. (NASDAQ:NFLX) and a handful of other “shutdown” plays were beginning to attract renewed attention. This could be a profitable short-term trading theme moving forward — especially if we’re hit with another negative news cycle.

But right now, the market is exerting maximum pain on everyone who enjoyed the uninterrupted 12-week romp back to the starting line. Futures popped higher Friday morning, only to give back their gains and dive into the red by the early afternoon.

Now the market is back at a key inflection point:

spx chart

You can see how the S&P 500 has quickly retreated back near the 3,000 mark, which also happens to be right at its flat 200-day moving averages.

If anything, we should expect some indecision here as the bears and bulls continue to wrestle for control. This is a market that is now ripe for some serious shenanigans. Watch out for false moves in both directions before we get more clarity as to where we’re headed from here…

— Greg Guenthner

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Don’t Gamble on Your Next Trade…

When I was younger, I used to make the pilgrimage to Las Vegas the first week of March Madness. I had a good analytical system to help place my bets — and it was quite a rush watching dozens of games simultaneously at the sportsbook. However, the silliness of seeing a meaningless basket blow up the spread at the end of the game was an all-too-often reminder that even with a good system — this was strictly gambling.

Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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