It’s time for rest and relaxation as we see another summer end.  I hope everyone enjoys the extra day off from the markets.  

It was an exciting day in the market with most of the day trading down, but then we had an end-of-day rally… or people taking profit before the long weekend.

The bond market dipped below a key level and came close to testing the mid-June low.  This could be a fakeout since there are other indicators that are showing the bonds are oversold at this level.  However, if we get more downward pressure and do break out to new lows, we should see the Technology sector come under more pressure and head lower.

The Technology sector doesn’t need any more issues. Nvidia (NVDA) and Advanced Micro Devices (AMD) are under enough pressure as it is with newly imposed license requirements by the U.S. on specific products for any future export to China and Russia, essentially restricting chip sales.

In other economic news, the jobless claims came out better than expected. We will see what this morning’s Employment Situation Report will do to the markets, but despite stories of Ford (F), Tesla (TSLA), and other tech companies laying off workers, the job market seems to be resilient at the moment. The unemployment rate is expected to stay at 3.5%.

Energy and Utilities are still the two best-performing sectors in the market. Let’s take a look at some ways you can trade those sectors.

Here is the relative performance chart of the various sectors. It’s been brutal for everything but Energy and Utilities over the last 30 days. With uncertainty in the markets, people are pouring into defensive sectors.

The Energy ETF we’ll look at is the XLE. It’s trading above its 50-day and 200-day moving averages and could see a pullback and bounce off of the 50-day, around $75.

The Implied volatility is higher than historical volatility, so you may want to wait until the opposite is true so that you are paying a cheaper price for the same option.  That said, the 18NOV22 $78 option is going for $610 per contract.  My targets are $83, $87, and $83. 

The other strong sector is Utilities.  Here’s the chart for XLU, a Utilities ETF.

Again, above the 50-day and 200-day moving averages with upward momentum.

I don’t see a November option and the December option is going out a little longer than I’d usually like (for long options I prefer 60 – 90 days and December is 106), but the 16DEC22 $75 option is going for $330 per contract. That means XLU needs to close above $78.30 by December’s expiration for the trade to be profitable – assuming you want to hold it up to expiration. My targets are $76.50, $78.05, and $80.66.

That’s it for now. I hope everyone has a fantastic weekend and we will be back in your inbox on Tuesday!