Recall that the gap higher last week triggered a Navigator Algorithm buy signal. However, given the market gapped to an overbought position, we have been using this pullback to establish our position.
So far, we established a 20% position in November 19th SPY (S&P 500) calls and a 5% position in November 19th XLF (Financials) calls by nibbling into the close of each of the last three sessions. We have targeted a maximum of 30% exposure, as it remains unclear whether we are positioning for a relief/short-covering rally or an actual reversal from a double bottom.
In one final trade to complete our 30% positioning for a rally leg higher, the Founders Group is taking a 5% position in IWM 222 calls expiring 11/19. The IWM is at 221.50 at this writing.
Because we are at the inflection point, we could still be selling everything by the end of this session because our stops were triggered. That is the nature of this type of positioning.
The first few hours were encouraging today as yesterday, but the market is back in sell mode at this writing.
The market continues to lean toward financials and energy as pressure on interest rates continues and inflation fears dominate. The IWM (Russell 2000) small-cap position we just established increases exposure to these areas. Moreover, smaller and medium-sized companies may be better poised to react to inflationary pressures.
It is essential to stay tuned today as our stops could still be triggered. We need prices to remain above their 5-day lines to continue to maintain long positions.
A.F. Thornton