From where I sit, the correction in banks is a long way from being resolved, and one of the biggest names in the biz appears to be teetering on the edge of a much more significant drop than already experienced. It's now down for the year and significantly below both 50- and 200-day moving averages.
So far in the early stages of this market correction (dare I say Bear Market? Too Soon?), I've been aggressively deploying Bear Call Spreads to attack bearish trading opportunities.
Bear Call Spreads are a version of a vertical spread that consist of a short call at or slightly out-of-the-money and a long call further out-of-the-money. The profit profile of bear call spreads typically maps out like this:
I'm not going to sugar coat it. There are numerous stocks and sectors that are hanging on the precipice that look like a small push could send their shares tumbling into a deep abyss. The Regional Banking Sector is one of these sectors. A quick scan across the landscape reveals a tornado of broken charts. And as one would expect, volatility is elevated across the board here and offers great edge to net options sellers.
A retail stock which earlier this year showed tremendous promise breaking out of a FIFTEEN YEAR base has faltered. And any regular reader of All Star Charts knows we're fans of the, "from failed moves come fast moves" phenomenon. In short, if a stock breaks out of an obvious pattern, sucks everyone in, then can't hold its breakout and reverses? Well, oftentimes the moves in the opposite direction can be doubly vicious.
The stock we've identified has reversed hard off all-time highs over the past four weeks, but it looks like the bad news may only be getting started. Friday's close left the stock's chart hanging on a precipice. We're thinking we'd like to give it a little nudge and see how hard it will fall.
How do you feel about a little buy-the-dip action in the crude oil space? Given that there's juicy options premiums to sell into here, it is certainly worth a discussion.
It has been quite a one-way ride lower for crude since early October, but the All Star Charts team may have noticed something that might make it worthwhile to dip our toes into these slightly contaminated waters:
In addition to improvements in sentiment, we’re seeing bullish momentum divergences being formed and/or confirmed across the board in the Energy Commodities themselves, as well as their corresponding US Equity Sectors.
This not only signals some potential exhaustion on the side of sellers, but more importantly, it allows us to define our risk on the long side which we haven’t been able to do since prices broke back below their July highs.
If you're bullish coming out of this Autumn's correction, then you're betting that recent lows in the indexes mark significant bottoms.
While we at All Star Charts don't believe Bulls are out of the woods just yet, we're of the view that if stocks can manage to trade in a sideways range for any length of time, that might be long term bullish for stocks and the economy in general.
With this as a backdrop, believers of the bull case should look at Walmart $WMT as a barometer of the American consumer and the willingness of investors to step in and take some risk.
We're gonna throw an idea out there for the bulls. They aren't dead yet, apparently. And we don't need to look too far before we come across the healthcare sector and stocks like Pfizer $PFE and UnitedHealth Group $UNH that are at or near all-time highs.
During our recent All Star Options conference call, JC brought our attention to this sector and it definitely caught my attention. With the broader markets kind of "stuck in the muck" right now -- not really offering any clear indication of the next major move -- we might as well add some long exposure against a current portfolio of delta neutral and bearish open positions to help give us some balance.
The best idea on the table right now looks like $UNH. Here's how we're going to play it without risking too much...
A common theme discussed in this month's All Star Options conference call was the fact that many sectors, commodities, and stocks were in "messy" or "sloppy" sideways holding patterns right now. The selloff that began for stocks in early October and bled into early November seems to have abated somewhat for the time being, leaving many stocks with terrible looking charts offering no clues on direction.
But the price action has not been limited to just stocks -- bonds and commodities too all seem to be lost in the muck right now.
This might frustrate some, but these types of environments can be wonderful for delta neutral income strategies. And Gold $GLD is a perfect example of an instrument showing little commitment to any up or down directional movement.
Welcome back! Thanksgiving week is past us and now we can focus on finishing out 2018 strong.
We don't feel like the market is setting up for any type of major bounce or reversal here or any time soon. We also are cognizant of the fact that US stocks have fallen a good way since early October and the risk for further downside from here is very high. However, you may accuse me of being sentimental, but the optimist in me doesn't think we will see any further scary downside from here through the Christmas/NYE holidays. May we break correction lows? Yes. But I don't expect any major dislocations before 2019. Of course, I've been wrong before and I'll happily eat humble pie again if I'm wrong here.
Either way, whether markets have another slide or if we just coast into the new year, it feels to me the Utilities space is a good place to hang out and collect some premium.
During our family's feast this year I'll be reflecting on my gratitude to each and every one of our subscribers, and to my team here at All Star Charts. I could not ask for a more engaged audience and a more top-notch group of analysts to work with. This year marks the maiden voyage of the All Star Options corner of the All Star Charts platform and the response from institutional and retail subscribers has exceeded my expectations and it makes me ever more motivated to continue crushing it for years to come for all of you.
Sincerely, thank you.
Now let's talk business...
This week we put an options spread trade on in Goldman Sachs $GS and it serves as a vivid reminder that we're not looking for perfection here. We're looking to follow a process.
There are still a lot of weak stocks out there that continue to show signs of worsening -- especially when they lag during every bounce attempt by the broader indexes. Goldman Sachs $GS is one of them. Goldman has been one of the stocks we've wanted to be short since mid October but the stock kept moving back in forth around our line in the sand -- $218 -- frustrating our attempts to pick a spot.
Last week, $GS finally made what feels like a decisive move to the downside and now is the time to strike.
