Weekly Market Assessment
The theory of buying on a correction seems like its here to stay! What looks like a 5% correction that everyone(self-fulfilling prophecy) was looking for has come and gone! We hit and broke down through the 100 day moving average on the S&P 500, only to retake this level and rally 100+ points, blowing past the 10, 20 and 50 day moving average in a short 5 day period. What is always amazing about the market is that it can take weeks or even months to reach new highs but only a few bad days can completely wipe out this progress. While at the same time, scare investors enough to pull their money out and then in the blink of an eye, return right back to where we were just a few days prior to the selloff. "Buy the dip" has become a house hold phrase that continues to work however when it arrives investors fear the worse and "run to the hills!"
On Tuesday, Jant Yellen testified in front of the House Financial Services Committee, she is the first woman to chair the Federal Reserve in its 100-year history. She expressed her continued support of the current monetary policies which was expected and the market reacted with a 200+ move. A sign of confidence that liquidity and economic outlook remains within their policy standards. Obviously this can be debated. For two consecutive months we have received a weak jobs report, as weather issues are said to be the blame. Gold has broken back above $1300 an ounce and the 10 Year Treasury bond remains in a trading range between 2.55-2.75%. The buy the dip mentality remains to be the play for now, however when this becomes a crowded trade the market could hand us the unexpected that could change our overall outlook on the market.
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Next week we get earnings from Tesla(TSLA) and Priceline(PCLN). I will be looking to extend the spread out with the date and strike prices for the TSLA Iron Condor. Volatility will be huge in this stock(creating tons of extra option premium) as everyone and their mother is going to be playing this earning release. I will also be looking for a short term "PUT" option as TSLA is overvalued in regards to all fundamental metrics. PCLN in terms of its P/E ratio is looked at as a cheap stock and has beaten on most earnings release. I will use an very wide Iron Condor with far out strike prices as volatility will expand creating extra option premium to be sold.
Making the Watchlist:A chart link is attached to each symbol that I will be following:
AIG- $48.98- Hit its 200DMA and bounced right off it to then trade back above its 20DMA. Beat on its earnings both the top and bottom line and increased its dividend by 25%.
FDML- $16.91- reports next week, technical setup with 5DMA crossing above 20DMA. Also Carl Icahn has appointed his former CEO to now being a Co-CEO with FDML. Trades in lower range on 2 standard deviations.
MDBX-$31.75 -announced that the DOJ regulators would allow banks to do business with legal marijuana dispensaries.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
Tesla (TSLA)- Sold a FEB 225/230 and 150/145 Iron Condor. TSLA 100 day moving average is at 159 which I chose as a support level and the $225 as a 20% premium to its current $200 price, which acted as a major resistance level when TSLA approached this level last quarter earnings. Also implied volatility is reaching near its 52 week high which has created extra option premium in the stock and that is why I am selling the Iron Condor.
Zillow (Z)- Engages in the operation of a real estate and home-related information marketplace on mobile and the Web in the United States. Z reported its earning after the close on Wednesday where the expected move was ~$8 when it was trading ~$90. I sold a FEB $105/110 and $80/75 Iron Condor. It beat on its earnings and opened up the followed day at around the same price. The run up to earning created a spike in volatility where it got crushed the following morning due to the little movement in the stock. Sold the option strategy for a 2 day option gain of 17%.