This move in $IYR (iShares US Real Estate ETF) is incredible, and we might go higher from here still. But I'm willing to bet a mild retracement will soon be at hand -- or at the very least we'll see a pause.
As the calendar turns to February, it is time to review our handful of open positions with Feb options that are nearing expiration and might require some attention.
Sticking with a theme we started the week with, if the market is poised for higher prices, they will likely be led by the Medical Devices space. Putting our money where our mouths are, we're taking a shot that will be a home run if it plays out, while offering us room to be wrong without losing too much.
If the worst is over for the stock market, then definitely one of the areas we want to be getting long is the medical devices sector. There are a lot of stocks here that have shown relative strength and are at or near all-time highs. If US stocks go higher from here, this sector will definitely lead the way.
We're about five weeks out from the start of Carnival in Rio de Janeiro, but the Brazilian stock market ETF $EWZ looks like it wants to get a head start on the party. And its one of the few places in the Western hemisphere pricing in muted volatility. This sets up a nice opportunity.
We’ve had quite a bounce in US equities since the beginning of the year. And the longer this bounce holds, the more appealing the long side gets. However, it still doesn’t alleviate the very real risk that we might be in what could best be described as a classic bear market bounce. And if that is true, the downside from here on any newly initiated long positions could be severe.
In addition to broader indices, there are certain bellwether stocks we monitor continually to offer better clues as to the strength or weakness of the market. One such stock we monitor has not followed along with the prevailing winds in the market since the beginning of the year and according to our view, is at serious risk if the market were to pause and/or resume back to the downside.
From where I sit, the likelihood of a pause in this bounce is pretty high right now, and becomes even more so with each new closing high for 2019. So with the potential for a significant pullback rising, now feels like a great time to take a shot on a short position in this struggling bellwether.
The bounce in US stocks continues off the Christmas Eve low, but it is showing signs of short-term exhaustion. Does this mean we go right back to lows? Not necessarily. I'm in the camp that some sideways chop would be constructive for the markets overall. As such, I'm in the mode of looking for smart delta neutral trading plans.
The debate seems to be raging between Bulls and Bears as to what's happening right now. The Bulls are declaring THE bottom is in and we're going up from here. The Bears are smugly observing what they think is just another dead cat bounce on our way to lower prices. Who's right?
What if they are both wrong?
Ms. Market loves to frustrate the largest amount of participants she can, as often as she can. And it seems to me the best way to frustrate the most people right now would be for U.S. stocks to tighten up and grind sideways for a little while. With that in mind, we have a nice ETF candidate to sell some delta neutral premium in while the next market direction sorts itself out.
We're headed back to our friendly neighborhood bank teller at JP Morgan Chase. She seems to like handing us cash. Twice she has been quite generous to us and the post-Christmas bounce in shares of $JPM gives us extra interest in coming back for a third helping.
