Weekly Market Assessment
A self-fulfilling prophecy or a true correction? The constant talk about a need for a correction looks to be on the horizon. The S&P 500 has fallen more than 2% since last Thursday's all time high of 1850.84. The Volatility Index has jumped more than 26% and the 10 Year Treasury Bond has now fallen to 2.73%, a sign that fear is re-entering the market. On Wednesday, we received PMI data out of China which showed "China's manufacturing activity contracted for the first time in six months in January." with a reading of 49.6, where anything below 50 signals economic contraction. This seemed to be the straw that broke the camels back as the S&P futures sold off Wednesday night, then continued to sell off when the market opened the following morning. Are we seeing the beginning stages of a sell-off that leads into the 5-10% correction?
The S&P blew past its supports levels at the 10, 20 and 50 day moving average which suggests a potential change in market sentiment. As in the past, the market uses this levels as a buying opportunity however, current conditions are not implying this approach. People are again fleeing to the safe havens as gold is now up 4% since last Thursday and as mentioned above, the 10 Year Treasury Bond is dropping as money enters the safer assets. The next big level for the S&P 500 is the 100 day moving average at 1762.94, will we reach this level? If we do, will the market continue to fall back on its strategy of buying on the pullbacks?
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Up next week, Ill be looking at AAPL and GOOG earnings. Ill be looking for both of them to beat on there earnings and will be looking for straight out of the money calls. The following week I will be looking to sell an iron condor to capture the extra premium that will come with the increase in volatility surrounding their earnings release.
Last week I mentioned that I would be looking at EBAY and NFLX. With EBAY, they barely beat their earnings however, the action that really moved the stock was the announcement from Carl Icahn, in which he stated buying a small position in Ebay and starting a proxy fight to have Paypal spin-off from Ebay as a separate entity. NFLX, beat on all metrics and jumped up over $50 the next morning.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX)- I sold another Vertical "CALL" spread at 1835/1840. I bought back this option for a 32% option gain. As mentioned for the past few weeks, 1845 remains a major resistance level for now.
Microsoft (MSFT)- Reported its earning on Thursday, sold a weekly Iron Condor at $38/39 and $34/33. MSFT opened up at $36.71, volatility crushed and was able to collect the entire premium for a 20% gain on the option trade.
Intuitive Surgical (ISRG)- Also reported on Thursday, ISRG was expected to move $33 on its release. I sold another weekly Iron Condor at $470/475 and $405/400. ISRG 200 day was at $419 and used this as a major support area to choose my "PUT" spread. ISGR opened the day at $412 and I bought back the option as volatility again got crushed on the open and had a 1 day gain of 27% on the option trade.
IShares 20+ Year Treasury Bond ETF (TLT)- I have purchased another hedge on my position by buying up March $109 calls, the TLT has broken out above its 10, 20, 50 and 100 day moving average. The 20 day moving average has also crossed above the 50 day average, another bullish sign. If the correction or any other future correction occurs, people will move into this safe haven as bond yields fall and prices rise.