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Where Is Santa When You Need Him? |
What a week. It started out bad and ended up the worst week in ten years for U.S. equities. Everything is going wrong at the same time. According to President Trump the evil Fed was the villain as they again raised rates. If you follow the political scene, Defense Secretary-Mad Dog Mattis did not agree it was time to pull our last 2,000 troops out of Syria and he resigned in protest when Mr. Trump overruled him. Of course, the government shut down on Friday as Mr. Trump stomped his feet over the wall deal in Mexico.
Not the kind of week you would expect leading up to Christmas. Not only did Santa not show up, he dumped a load of coal on Wall Street and Washington at the same time. The problem on Wall Street is not without any advance notice. Although markets never announce themselves, it was noted last week that the aging bull was on its last legs and that equities were losing their luster. This week the sellers took control of the market and we must assume until buyers are willing to step up their bids, the fear will continue.
No one can pick tops and bottoms on a regular basis, but it feels like this market is way over done to the downside. In fact, Market Edge’s computer models are saying that over the past 25 years there has only been four other times when the market was this oversold. That doesn’t mean we will get a rally on Christmas Eve. Unlike George Bailey in the 1946 classic “It Is A Wonderful Life” the real world of Wall Street is never that kind.
Because of the way the holidays fall this year with Monday being Christmas Eve and Tuesday is Christmas Day, it is highly unlikely that there will be any price action before Wednesday. Most of the traders will be gone this week. There is a saying on Wall Street, if you haven’t made your year by the 24th of December it is time to look to next year, and that is what we do here at Optionomics Group LLC. We are gearing up for 2019 and will take the rest of the year off without any new plays. Oh, by the way. I think the the government shut down will end shortly with Mr. Trump and Mr. Shummer shaking hands on the deal and congratulating themselves on what wonderful world it is.
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Is It Possible To Sell A Credit Spread That Has Less Risk Than Reward?
Yes, it is possible to sell a credit spread that has less risk than reward. The trade is called a 60/40 and it is an aggressive, directional spread. Here is how it works. Normally when we sell a credit spread we sell the ATM strike and buy a strike that is further out of the money. If you use a 60/40 we sell a spread that is slightly in the money. We are not taking a neutral position rather we are trying to predict the direction that price will move. So instead of selling a 5 wide spread for $220 and assuming a $280 risk we sell the spread for $280 and assume a $220 risk. We never risk more than the difference between the strikes minus the premium we collect on the spread. The difference is with the 60/40 spread, if the price doesn’t move in our favor we will not collect the entire $280. We will collect only a portion of the spread as a profit. The 60/40 is a spread that many professional traders use when they are confident that the price will move in their favor.
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mr. Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. Let’s take a look at how the Equity markets are faring.
Possible Blow Off (Bearish)
If you check out our weekly webinars, you know that the Market Edge (www.marketedge.com) market timing computer model turned negative at the end of September 2018, within a couple hindered points of the all time high. Although the market continued to rally for awhile, we advised against initiating any new long positions. We thought it was much better to trade from a safe posture. When a head and shoulders pattern on the DJIA’s chart was violated a couple of weeks ago, we felt that there would be more pain to come. As it turned out we were right. This past week has been the worst week for equities in ten years. The Market Edge computer system has only seen this type of panic selling on four occasions in the past 25 years. Is this the bottom? We feel that there is much better than a 50% chance that we are at or near the lows for this current cycle. Under no circumstances should you sell into this break. If you have not already hedged your risk, selling here is the worst thing possible. The only way to play this market is from the long side. If you want to sit on the sidelines and wait for things to settle down, that is your option. Under no circumstance should you want to get short at these levels.
Get Your FREE Two-Week Trial Subscription
The option trades and strategies offered by The Optionomics Group are very unique in that they all have limited risk while creating great leverage. Our basic BL – BR Credit Spread Strategy (and all of the others) let you control 100 shares of a $200 stock ($200*100 = $20,000) for less than $500 (the spread differential minus the credit spread) or 40:1 leverage with your risk limited to only $500. Plus our strategies produce winning transactions in four out of five possible outcomes.
The Optionomics’ strategies let you become the casino whereby you have a mathematical edge that lets you grind out consistent returns in any kind of market environment. These strategies are designed to produce good returns over a short to intermediate term time frame. It is an approach to the stock market which will be hot, cold or average over time, but the end result should be very good in any type of market environment.
I offer a FREE Two-Week trial to the various subscription services with no cost or strings attached. Each strategy is explained in a 5-7 page booklet which includes sample recommendations and model portfolios. I doubt that you have ever seen anything like this. During your FREE trial, you can paper trade the various strategies and get a feel for the deal without risking a penny. Simply click on the appropriate tab on the Optionomics’ Home page to access the informative booklets and then sign up for one or all of the weekly subscriptions.
- The 21st Century Covered Calls Strategy: A modern day alternative to the old fashioned covered call strategy.
- The Low Cost Put – Call Hedge Strategy: Sleep at night knowing your portfolio is protected for little or no cost.
- The Bullish – Bearish Credit Spread Trade: The basic strategy of trading weekly credit spreads.
- The Earnings Trade: Get in on potential big movers with little or no downside risk.
- The One Day Wonder Trade: Get ready for some real action. A one day trade with great potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
Each Monday morning by 11:00 EST, the plays for the upcoming week plus updated model portfolios for each strategy are posted on the site. The prices in the reports are Monday morning’s opening prices. In addition, I have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the floor and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to one or more of the subscriptions for only $19.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to three, it is only $49.95 per month while you can subscribe to all six for only $79.95 per month, a 33% discount. I think you will agree that this is a super offer so give it a try. Click on www.optionomicsgroup.com to access the Optionomics Group web site and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert