The Founders Group has just taken a small call position in each of the SPY, QQQ, and IWM ETFs. The S&P 500 chart appears above but all the charts are similarly oversold. We are utilizing at-the-money calls expiring on February 18th. These are our first trades of the year, and we are positioned just a few ticks above the morning lows.
Each of these instruments are on important support, with positive divergences on their 15-minute charts in the context of the CBOE Put/Call ratio fear guage set to a bullish position today. We are also positioned close to the WEM lows for today’s weekly options expiration.
I would not be surprised to see a short-covering rally towards the end of today’s session – as the shorts are not well-positioned here if the market fails to break. On the other hand, if it appears that we will close below this morning’s index lows. that would give me some pause in holding the trades over the weekend.
I am expecting these to be nothing more than short-term trades on an oversold bounce- as opposed to something we can hold longer-term. In fact, the trades may only be good for a move through Tuesday.
Cyclical forces don’t clearly turn until the end of the month. Moreover, we have seen the market pull down into monthly options expiration of late – a risk that remains with us until next Friday if the pattern is to repeat. So taking a long-term view is a bit challenging until we get into February.
Ultimately, I would consider getting aggressive on a swing trade closer to 4400 on the S&P 500, which is the 200-day line. We have not visited that line in many months, with the 89-day line catching the fall, as it just did again this week. That is highly unusual behavior, so the trip to the line is long overdue and would help to correct excess conditions.
In the meantime, we continue to live with the sloppy, overlapping consolidation pattern as can be seen in the daily chart above as the markets continue to reel from higher inflation and interest rates.
But regardless of the volatility, the S&P 500 Index remains inside its intermediate bull channel. Until that channel fails, doubts should be resolved in favor of this somewhat less rewarding bull market.