Choppy Markets Persist
Market Commentary for the week of April 16, 2023: Choppy Markets Persist, “bad news” has officially become “bad news” again, bank earnings mixed so far, and the VIX decides to bury itself in the sand.
This was one of those weeks that surely tested a person’s patience. With CPI data failing to lift markets on Wednesday, it took the PPI data the following day to get the job done and put in a decent rally. Friday, we saw a sour retail sales number come in which brought us right back down again to finish up less than 1% on the week.
The positive thing about it: good news was finally celebrated, and bad news was sold, when in the beginning of a tightening phase we often see good news be bad news, only for it to turn into even worse news!
We are dealing with a less-volatile, more normalized market, which we often see towards the end of a cycle. This can be a welcome relief hopefully in the weeks to come.
With a VIX spike nowhere in sight, for now we can focus on trading individual names aggressively using options, without having to worry about high premium costs due to large, volatile reversals (see VIX below-at a one year low):
Attend John’s Options Trading Boot Camp:Visit this page to become a member ==>
Because of this, I have been doing a larger percentage of straight calls and puts, rather than multi-leg strategies that I usually prefer to put in my basket. More aggressive trades mean more careful risk management, and the one thing I will often do for these situations is scale into profitable trades, and never get the chance to own a “full position” of a losing trade.
Simple strategies like this allows me to be aggressive when necessary, and abandon other trades when they just are not working out to plan.
The Nasdaq 100 fared worse than the S&P this week, putting in a very small gain of .16%. It was not so much the lack of gains that frustrated traders, it was the back-and-forth choppiness that really caused many to simply get caught off sides. It was a swing/basket trading paradise, but a challenge indeed for shorter-term day-trading and scalping.
For instance, in the SPY, we had 3 out of 5 “red candle” days, despite technically having an “up” week. We saw 2 gaps getting sold off and 2 gaps down getting bought, which implies a lingering hint of indecision. (See below).
From a technical perspective, SPY is bumping up against stiff resistance at 415-418. With not much in the way of economic data this week, earnings from the remaining banks as well the start of other major groups reporting should be the main driver this week. Based on where we are, it is very possible to see a very similar “up, down, nowhere” type of move this week.
My gameplan will be simple this week. Make meaningful, aggressive trades on specific names due the lack of volatility (and the potential for a spike to capitalize on), at the same time hedge these trades utilizing credit spreads to the downside AFTER an earnings release gone bad.
It will be there where individual implied volatility can be high, and get crushed following an earnings release. A subsequent move to the downside could lead to some very fun and profitable trading while at the same time maintain my overall “modestly bullish” stance on the markets.
