Weekly Market Assessment
Its called the pain trade! This “pain trade” goes back to legendary trader Jesse Livermore who posited that markets will move in whatever direction that hurts the largest amount of people. The NASDAQ has rolled over from its highs and has been trading in the opposite direction of the other two major markets. The Dow Jones has broken above and made its first new high since December 2013 accompanied by the S&P 500 getting closer to 1900! I was very well part of this pain trade, as I was shorting the market through put options. We usually see markets that trade in relation to one another. We are not seeing that here and this could be flashing a large warning sign. Why is the NASDAQ not following the other markets to new highs and instead on is way to making new year lows!
We got the March Jobs report today, where 192,000 jobs were created compared to the 200,000 expectation. Markets reacted by making new highs and then selling off. Again, another sign that we cant break through and stay above new highs without sellers stepping in to bring it back down. This has created the "pain trade" as traders see weakness in the market they go short. However the market again turns against "us" and we suffer through trying to understand why the markets continue to move higher! In the end, one side will give up and the market will again, turn against those that where led to believe in the markets future direction.
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Not looking at anything next week, want to see how the market will respond to the sell off seen in the NASDAQ this week.
As mentioned last week about the Jobs Report, I was able to exit my SPX 1880/1885 position after the jobs report and then again sold another Vertical "CALL" Spread at 1900/1905, as we did get an initial spike in the S&P 500 after the open. The S&P 500 is currently at 1865.09
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
Amazon AMZN ($323)- AMZN is now trading below its 200 day moving average, which is at $339.95. It has been selling off on more than double its average volume and as of buying the "CALL" option, it has traded more then 3X its average volume. This could be a sign of capitulation, where shares are being exchanged from weak hands to the strong hands. Investors could be looking at this as opportunity to get in on this stock at a 20% discount from its highs.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX)- As mentioned last week I sold another Vertical "CALL" spread at 1880/1885. Exited this trade with a small gain after a crazy week of this position moving against me until the sell off on Friday. I have sold a Vertical "Call" Spread 1900/1905. There looks to be major resistance at 1895 on the S&P 500.
General Motors (GM)- Got out of this position with a small loss of 11% before the jobs report on Friday and before the option expired. I am also looking to take another position in GM as this sells at a big discount to its peers.
Citigroup (C)- I sold the APRL $47.50 "CALL" alot earlier than what I expected as this ran up to $48.36 on Wednesday, had a one week gain of 23%. I am again looking to take another position if it drops below $47.50.
Amazon (AMZN)- Bought a Weekly $325 "CALL" on AMZN, as this now trades below its 200 day moving average.