January 20th, 2022

Intraday Swings Are Back

I had a debilitating migraine most of yesterday that kept me out of trading, but I noticed that we’ve had three days in a row where the market changes direction in the afternoon.

Here’s a chart of the last six trading days of the S&P 500. You can see that four of the last six days start off in one direction and will abruptly change (white line drawings).

Part of that is due to earnings, part due to Fed speeches, and part is that we’re trading right around the 200-day moving average. It may be worth waiting until later in the day to place trades or trade adjustments until you have a better sense of where the market is headed that day.

Where are we likely to go from here? The market rose a little too fast last week and is still looking a little overbought to me, but starting to get better on some of the lower time frames. Overnight futures are up at the time of writing and we’ve already experienced four days of selling, so we could see a bit of a relief day coming for the end of the week.

The market could also be lifted by earnings in the tech sector.

Netflix (NFLX) kicked off tech earnings and in aftermarket hours, it was up over 7% and that could offer a preview of what the rest of the sector will look like.

Are investors ready to jump back into tech after last year?

Get Today’s Trade Idea (and more)

If you’re willing to jump back into tech, Advanced Micro Devices (AMD) might be the way to do it. They do have earnings coming up, so this is a shorter-term trade.

The stock is falling back from its recent swing high, but this is a short-term mildly bullish idea based on the theory that AMD will stay above $60 per share over the next 29 days.

+1 17 FEB 55 PUT
-1 17 FEB 60 PUT
Net Credit: 0.78 ($78 per spread on $422 of risk)

The underlying would need to travel lower by more than 10% to get to the sold strike and I don’t see a move like that happening to AMD in a month.  Could it happen?  Sure, and you should always be prepared.  

Look for another down day and see if AMD slows down along the trend line and if it does, that’s a great time to enter into the put spread, with the assumption that the stock will bounce back from the lower trend line and move higher.  

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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab