What’s Really Behind The Mega-Cap Move?

The market took a breath of fresh air yesterday after triple witching last week. Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index option contracts all on the same day. This happens four times a year; on the third Friday of March, June, September, and December.

Typically triple witching offers a positive return by the end of that week and a bearish return the following week. So, of course this year has to be different. Last week several markets moved outside of their expected moves, so maybe we’ll continue to see a bullish week after the triple witching event instead.

Have you been keeping up with Bitcoin? It dipped down to below $18k on June 18th, and has been on a steady rise since then and crossed back above $20k, showing that investors are willing to get into riskier assets once again.

You know that I like to present the relative performance charts of the sectors, so now let’s take a look at three different time frames and look at how the sectors have shifted.

options trader

Consumer Cyclical stocks are the worst performers over 3 months, but now sit atop the leaderboard of the 1-week performers.  Energy was the best over the 3 months and now the worst over 1-week and near the worst in the past month.  Follow the colored lines and you can see how some of the sectors have rotated over time.  

Consumer Cyclical stocks include some of the mega caps like Amazon (AMZN), Alibaba (BABA), Home Depot (HD), and Tesla (TSLA).  

The question is if this is another bear rally or the start of something else.  

Here’s a chart of the Volatility Index (VIX) and the lower the number, the less volatility, which usually brings higher prices in the markets.  If you notice, the highs are getting lower over time and the lows are getting higher, forming a wedge.  

options trader

Now, let’s take a look at the S&P 500 chart.  We fell below the long-term trend and if the VIX is going to head back down and re-test the trend line back down to $26, then I’d expect to see the SPX chart (below) come back up to rest the $3850 level.

options trader

The put/call ratio on the market, which measures the ratio of put contracts (bearish) to call contracts (bullish), is looking oversold at a ratio of 1.13.  If you look at the chart over the last two years, anything over 1 is showing us an oversold market.  Granted, oversold doesn’t mean the market will reverse.  The p/c ratio was oversold for an extended period in April and May, but if you combine the three charts, it’s certainly looking like a case for a near-term relief rally.

options trader

The last chart I’ll show is the Russell 2000 (IWM).  The Russell 2000 index consists of smaller cap stocks than the S&P 500.  As a result, the index tends to gain ground faster than the SP500 and can lose ground faster as well.  It can be a indicator of how much risk investors are willing to accept right now. 

The Russell 2000 index is at the bottom of the channel, and just bounced off that resistance line.  If we get a further bounce here, it will likely carry over into the larger SP500 index as well.

Tech stocks like Alphabet (GOOGL), Nvidia (NVDA), and Apple (APPL) all closed up more than 3%, but crude oil also had a rally of nearly 1%, which helped lift energy stocks and energy service providers.  

I suppose it’s also worth mentioning that Tesla (TSLA), in the Consumer Cyclical sector, gained about 9% on the announcement that they are going to layoff 10% of their salaried workers.  

If you are an options trader and want to take on a little risk, I’ll show you an options trading strategy with a potential 55% gain by July 22, 2022.

I mentioned that the Russell 2000 could rise to the upside, assuming that the broader market selling is going to take a breather this week.

Using a Bull Call Spread, which consists of buying and selling call options, we can trade the Russell 2000 by using ticker, IWM.  

Ticker: IWM

Buy to open Aug 19, 2022 $170 CALL
Sell to open Aug 19, 2022 $175 CALL
Debit (max risk) : $229.50 / spread
Max ROI: 55% ($270.50)
Exit(s): Look for resistance when the underlying symbol hits around $182, or when the spread gains 90% of max profit ($243).

If you have any questions, comments, or anything we can help with, reach us at any time.

 

Jeff
Guest Writer, Filthy Rich, Dirt Poor
Editor, Wealthy Investor Society

Is the Consumer Expectation Index a Leading Indicator?

Is the Consumer Expectation Index a Leading Indicator?

johnh
On June 28, 2022

Just how correlated are consumer expectations with the reality of the market? Can this be used to predict where market prices will go?

Keep reading…

A Case For A Bearish Reversal

A Case For A Bearish Reversal

johnh
On June 27, 2022

Then something happened in the market today and this one chart may be presenting a different side to the story. This chart pattern may be signaling the next leg down is right around the corner and now is the time to get ready.

One Stock To Watch Next Week

One Stock To Watch Next Week

johnh
On June 23, 2022

Let’s look at a strategy you can use by selling stock options to potentially take advantage of a near-term bump in the ride-sharing companies.

Most Successful Options Strategy

Most Successful Options Strategy

johnh
On June 22, 2022

Selling options for weekly premiums can be a good strategy if you know how to navigate the extreme peaks and valleys each week.

All Eyes On Energy

All Eyes On Energy

johnh
On June 20, 2022

With the Energy stocks beaten up so much last week, I wouldn’t be surprised if we see a little bump back up this week.

I have an idea for an Energy trade.

Shake Out Or Another Leg Down?

Shake Out Or Another Leg Down?

johnh
On June 16, 2022

Get Today’s Trade Idea

We’re going to stick with point-and-figure charts today. The energy sector has been red hot but has lost some ground over the last few days. Oil and Gas companies could be negatively affected by a slowing global economy.

5 Things You Need to Know About Fed’s Biggest Rate Hike In Decades

5 Things You Need to Know About Fed’s Biggest Rate Hike In Decades

johnh
On June 15, 2022

What is the Fed Doing?
In an effort to combat out-of-control inflation, the Fed is increasing interest rates to slow down the growth of the economy. The trick is to do so without causing a recession.

Is Zoom a Buy or Sell Right Now?

Is Zoom a Buy or Sell Right Now?

johnh
On June 14, 2022

Zoom has become so part of our vernacular, that people use it as a verb. Sort of like how people ask for a Kleenex, even though that’s just a name brand of facial tissue. So if everyone is still Zooming, at home, at work, and at school, why has the stock been falling?

Timing The Bottom

Timing The Bottom

johnh
On June 13, 2022

Keep reading to see if discretionary spending and the price of oil are correlated and if we can pick a market bottom.

3 Ways To Protect Your Portfolio

3 Ways To Protect Your Portfolio

johnh
On June 12, 2022

Past performance is not indicative of future results, but I want to give you three ideas of what you can do to hedge against volatility.

PREV NEXT

Contact

267 Kentlands Blvd #225
Gaithersburg, MD 20878

P. (866) 257-3008
(Monday-Friday 9:00 AM-5:00 PM EST)

E. [email protected]

Products

About

Publisher of actionable and proven strategies and tactics to help investors build wealth and reach seven-figure portfolios.

Receive the latest news

Subscribe To Our Daily Newsletter

Get notified about new articles, special events, training, and much more

Like What You See?

Leave your info below to get more options and trading ideas to your inbox

Yes, send me news to my inbox.