Weekly Market Assessment
Starting with a 200+ point rally in the Dow Jones from last Friday, we now have experienced the worst 3 day losing streak in 4 months! How can this happen? We had a great retail sales report, a bipartisan budget proposal that passed in the House of Representatives and last weeks positive jobs report. With all these factors, the market spirit should have lifted. Instead, we have fallen 300+ points and the VIX (volatility index) has jumped over 19%. In what seems like positive sentiment in the market with the improved economic news and politicians finally getting along, the markets are expressing signs of uncertainty.
The 10 Year Treasury Bond now rests at ~2.90%, approaching the psychological level of 3% as money is moving out of the "safe havens" even though market skepticism is entering the market. News of a more hawkish (concerned with low interest rate) Federal Reserve Vice Chairman has brought up the Taper Talk discussion again, even though we have not seen the specific economic levels that would justify a reduction in its monthly asset purchases. Its the end of an unbelievable year for the markets and with fund managers locking in their gains, buying opportunities should present themselves as long as technical and market fundamentals hold up!
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Next week we get a FOMC (Federal Open Market Committee) rate decision. Rates should remain the same at 0-.25. The market should respond positively as easy money is here to stay. Ill be looking at certain technicals levels and looking to buy the SPX on this report.
We got the Retail Sales report, which came in above expectation. Sales rose 0.7%, the best in five months! Best Buy BBY ($41.05), didn't get the bounce from this good November report but with a market being down is no surprise.
From the Trading Floor to the Option Pit: A quick look at what's on the trading desk
S&P 500 (SPX)- I sold Vertical "CALL" Spreads at 1820/1825 and exited this trade for a week gain of 31%. I then sold another Vertical "CALL" Spread at 1795/1800 as we continued to break below the 20 day moving average. I bought back this option for a 2 day gain of 29%.
Lululemon Athletica (LULU)- After the company announced that the founder and CEO would be stepping down, I sold an Iron Condor going into LULU earnings. LULU guided down on its 4th quarter earning, which made LULU sell off huge. Over 12% drop on the morning it released its earnings. I was able to exit one leg of the Iron Condor however continued to try and correct the losses from the "PUT" side of the Condor. Total loss from these option trades was 46%.