CNBC has revised their Option Action show which is aired every weekday night at 5:30. They have really beefed up the Friday show to the point that we think it is one of the best option oriented shows on the air. Check it out.
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Major Averages Fall Flat
A flurry of mixed earnings and economic data this week ended with the major averages flat as investors continued to digest the new data for clues on the outlook for U.S. interest rates and the economy. The outperformance of money center banks was offset by disappointing earnings reports from regional banks that had record outflows in the wake of last month’s turmoil. Another round of hawkish Fed comments and rising yields erased earlier gains on Tuesday and ended the session flat with Fed President Bostic suggesting that the Federal Reserve could pause after a May hike. With the 10-Year Treasury rising to 3.6% and the two-year climbing to 4.27%, mortgage rates were pushed higher as economic data showed a drop in mortgage applications and buyer demand at multi-year lows on Wednesday. Stocks closed lower on Thursday amid disappointing results from Tesla (TSLA) and AT&T (T), mixed earnings data from various sectors, and softer-than-expected housing and jobs data. Friday saw another subdued session as blue-chip component, Proctor & Gamble (PG) and HCA Healthcare (HCA) reported solid results and future guidance, but the major indexes remained rangebound as no major catalyst presented itself throughout the week. The DJIA and the S&P 500 traded in a narrow range throughout the week and remained above both their 50 and 100-day moving averages. The NASDAQ was also moving sideways as it continued to trade above its 50-day MA. Bonds were also flat as the benchmark 10-year note closed around 3.51%, while the 2-year yield settled at 4.10% while the US Dollar (UUP) managed to eke out a small gain for the week.
Consumer Staples (XLP), Real Estate (XLRE) and Utilities (XLU) were our leading sectors during the week, while Communications Services (XLC), Energy (XLE) and Technology (XLK) underperformed.
For the period, the DJIA lost 77.51 points (-0.2%) and settled at 33808.96. The S&P 500 was lower by 4.12 points (-0.1%) and closed at 4133.52. The NASDAQ eased 51.01 points (-0.4%) finishing at 12072.46, while the small cap Russell 2000 managed to post a gain of 10.36 points (+0.6%) finishing at 1791.51.
Market Outlook: The technical condition of the market remains mixed as most of the major averages finished the period lower. The majority of the technical indicators for the different indexes are in neutral territory. MACD, a short-term trend gauge, is bullish while Momentum, as measured by the 14-day RSI, is improving. The DJIA was able to hold above support at its 100-day MA this week and above the descending trend line off the January-October decline. The S&P 500 managed to hold support around 4130 this week and remains above both its 100 and 50-day MA. The NASDAQ remains above its 21-day MA as it continues to trade in a range between 12000 and 12200, which has been in place since the start of the month. However, negative divergence could be seen with the Philadelphia Semiconductor Index breaking below its 50-day moving average.
Investors may also want to keep an eye on the VIX. The volatility index continues to fall throughout the week as it settled around the 16 handle. The technical indicators for the secondary indexes, including the DJ Transportation Index and Russell 2000 are in neutral ground and momentum has slowed, which is in line with the major averages. The small cap Russell 2000 continues to stall below its 200-day MA, while the DJ Transportation Index, which struggled at its 100-day MA, is beginning to test resistance at its 50-day MA. These indexes will need to bust through those resistance areas before the broader market is likely to take another leg higher.
Underlying breadth was mostly negative with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, moving lower. New 52-week highs on the NYSE outnumbered the new lows for a fourth consecutive week. New lows continue to outnumber the highs on the NASDAQ with the new highs last reversing the numbers in early February. Investor Sentiment is neutral. Retail investors saw an uptick in the bulls from 27.2% to 26.1%, with most remain in the Neutral camp according to the American Association of Individual Investors (AAII). The National Association of Active Investment Managers (NAAIM) Exposure Index increased their equities to 78.3% from 58.7% the prior week.
A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.
Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times.
Currently, the CTI is Positive at +4, unchanged from the previous week. Cycles A, B and E are bearish, while Cycles C and D are bullish. The CTI is projected to go to a negative configuration in May.
Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.
The Momentum Index is Positive at +6, unchanged from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line lost 2728 units while the number of new 52-week highs out did the new lows on all five sessions. Breadth was mixed at the NASDAQ as the A/D line added 4765 units while the number of new lows beat the new highs on each day. Finally, the percentage of stocks above their 50-day moving average decreased to 45.5% vs. 48.1% the previous week, while those above their 200-day moving average also pulled back to 50.3% vs. 53.9%. Readings above 70.0% denote an overbought condition, while below 20% is bullish.
Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Neutral at +2, unchanged from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 4/20/23 shows outflows of -$8 billion.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bullish as of the week ending 3/24/2023 (DJIA – 32237.53).
Ask Mr. Seifert
What is the VIX index and how is it calculated?
VIX is the ticker symbol for the CBOE’s volatility index. It shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options This volatility is meant to be forward looking and is calculated from both calls and puts and is a widely used measure of market risk as to the “investor fear gauge” the CBOE designed the VIX to create various volatility products. The VIX, however, was the first successful attempt at creating and implementing a volatility index. Introduced in 1993, it was originally a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, in 2004, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility because of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.
The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option’s expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.
While there is not a way to directly trade the VIX, the CBOE does offer VIX options, which have a value based on VIX futures and not the VIX itself. Additionally, there are 24 other volatility exchange-traded products (ETPs) for the VIX, bringing the total number to 25.
FREE Two-Week Trial Subscription
The option ‘Strategies’ offered by the Optionomics Group are unique in that they all have limited risk while creating great leverage. Our Basic Strategy, “Bullish – Bearish Credit Spread Trades” lets you control 100 shares of a $200 stock, a $20,000 position for less than $500 which is 40:1 leverage. Your maximum risk is always limited, and our strategies produce winning trades in three out of four possible outcomes.
Optionomics lets you be the casino whereby you have a mathematical edge that enables you to grind out good, consistent returns. over a short to intermediate-term time frame in any type of market environment.
Optionomics offers a FREE Two-Week Trial to its entire web site with no cost or strings attached. Each of the strategies are explained in a 5-7 page booklet and a video which includes detailed explanations and sample recommendations. During the 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 the trail. As a special offer, you can download a FREE copy of Mr. Seifert’s latest book, “Trading Options My Way”. I doubt that you have ever read anything like this.
The ‘Traders’ Strategies Includes The Following:
- The Basic Strategy: Bullish – Bearish Weekly Credit Spread Trades: A basic strategy to trading weekly credit spreads.
- The One Day Wonder Trade: A one day trade with great consistency and upside potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
- The SPY Short-Term Power Play: Trade the SPY Index with a two day time frame.
The ‘Investors’ Strategy Includes The Following:
- The Billionaire Risk Reversal Strategy: Big time leverage – small time risk.
Each Monday morning by 11:00 EST, the recommendations for each strategy are posted on the Optionomics’ web site. In addition, the updated results from the previous week are posted on the Optionomics’ Scoreboard. You can subscribe to either the ‘Traders’ plan or the ‘Investors’ plan for just $29.95 per month each on a month to month basis with no contract or strings attached. If you subscribe to both (great idea), it is only $49.95 per month which is a 20% discount off the regular subscription rate. I think you will agree that this is a super offer so give it a try. Go to www.optionomicsgroup.com and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”
Mr. Seifert