Options Insight: Markets Remain Bullish As GDP Rises More Than Expected and Inflation Remains Tame

Markets remain bullish as GDP rises more than expected and inflation remains tame:

The S&P 500 last week put in a high-tight base BUT with a very scary “bearish engulfing”candle on Thursday before ending up finishing the week positive.   The NASDAQ 100 tested the 20-day SMA and looks like it wants to continue going higher based on Friday’s price action (see below on both).  

With the FED meeting now behind us and subdued price action on Wednesday, the market turned to GDP last Thursday which put out a surprising 2.4% increase. This left many people to ask, “what recession?”  

That led to a gap up and a subsequent selloff that day which made some investors nervous leading into the very important core PCE on Friday. This number, however, was right in line and caused markets to calm down finishing everything higher for the week. 

The S&P 500, the Nasdaq 100, and the Dow Jones were +1.05%, +2.09%, and +0.66% respectively.  Quite the wild ride it was from Wednesday to Friday!  

With major earnings announcements still in front of us, overall the picture has been fairly positive with not too many negative surprises.  This leads me to be bullish, particularly in the energy sector, which for the first time has shown extremely positive price action the last week or so.

When trading oil or energy related names, I like to look at the smaller, less-known companies. This sub-group reacts faster to the price of oil than some of the larger well-known names you might put in your gas tank.   A good example of that would be Murphy Oil (see below). 

After a 4% charge in oil last week, and money seemingly rotating out of tech, these smaller names can be bought over and over again on pullbacks. 

Options strategies like the diagonal spread, which lets you handle a nasty pullback or two without getting stopped out on a potential winner is a go-to strategy for newer uptrends like this one.

One sector that continues to struggle is real estate (see below).  As an options basket trader who always has bulls and bears in his portfolio, it is getting increasingly more challenging to find bears.   One place to look is definitely in this group.

After completing a screening of the technology sector there are over 200 names that I found below their 20 and 50-day moving averages.   Relative weakness in lower-quality technology is starting to affect the smaller companies, and with Apple reporting earnings this week we may see a spillover into some of the more well-known companies.  

One bearish idea I’m looking at is his Zebra Technologies (see below).

A more controlled option strategy like a “bear call spread” has defined risk/reward and is a great tool to add bearish exposure in a bull market that can cause even weak stocks to remain flat and not necessarily trend lower. 

Overall, the bulls remain firmly in charge, and I will express my basket that way until of course the market tells me otherwise. Being balanced and thoughtful in the right sector, stock, and option strategy selection is the edge I always give myself under any situation.

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