There is a lot that does not make sense right now. But regardless of the narrative, price action is what matters.
We sit here today with the highest inflation reading in 39-years. Yet Gold does little or nothing (and has done little or nothing), rates remain low, interest-sensitive growth stocks rally, and so do interest-sensitive utilities and REITs.
Perhaps the market believes that inflation is peaking here – and there is a solid case to be made.
Whatever the Fed plans to do, it is no secret and is already baked into the tape.
If the market holds its ground at 3:55 EST (in 25 minutes), which means it holds above 466 on the SPY, we will reenter a 25% position in each of the DIA and SPY at-the-money calls expiring January 18th at or near the closing price.
Since we will be executing in the last 5 minutes, I can only publish after the fact. At the moment, I am simply waiting for expiration to be out of the way.
The DIA has remained the strongest of the indices this past week. It has a symmetrical V reversal pattern, which is also visible in the SPY.
Straight calls are okay now with the drop in the VIX today. We will hold our other 50% in abeyance. I will communicate stops over the weekend, as they are unnecessary (and not possible) on calls. Our risk is limited to what we pay for them.
Stay tuned,
A.F. Thornton