Major Averages Tumble for Third Week
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).
The major averages extended their losses from the previous Friday’s selloff this week after Fed Chair Jerome Powell’s ‘no pain, no gain’ speech at the Jackson Hole Economic Symposium. Better-than-expected economic data and jobs numbers to start the week dimmed hopes that the Fed could maneuver a soft landing and the DJIA tacked on a 772.97-point (-2.4%) loss to Friday’s 1008.38-point (-3%) tumble. Four days of losses left the market oversold however, and investors bought a dip on Thursday that brought the DJIA and S&P 500 back into the plus column by the close, but weakness in semiconductors kept pressure on the NASDAQ which fell for a fifth straight session. Shares of Nvidia (NVDA), Advanced Micro Devices (AMD) and others tumbled after the US restricted chip sales to China. Every sector was red with Technology (XLK), Materials (XLB), REITs (XLRE), Industrials (XLI) and Energy (XLE) all down more than -3.5%. Rates were on the rise and the two-year T-Bill hit its highest mark since 2007 before landing at 3.52%. Recession fears sent crude oil prices sharply lower sliding to $86 a barrel before finishing the week at $87.01. The US Dollar punched a 20-year high on Thursday also keeping pressure on commodities and the CRB Index traded down to its 200-day MA on Friday. The major averages tried to rally again ahead of the long Labor Day weekend, but the bounce stalled at their respective 50-day MA and the different indexes sank into the close leaving the market down for a third consecutive week. For the period, the DJIA lost 946.96 points (-3.0%) and settled at 31318.44. The S&P 500 gave up 133.40 points (-3.3%) and closed at 3924.26. The NASDAQ dropped 510.85 points (-4.2%) finishing at 11630.86. The small cap Russell 2000 slipped 90.17 points (-4.7%), finishing at 1809.66.
Market Outlook: The technical condition of the market deteriorated this week as the major averages continued to sell off for a third consecutive week. The technical indicators finished the period in negative ground with Momentum, as measured by the 14-day RSI, negative and closing the period below 40. The major averages also broke below key moving average support levels crossing back below their respective 100 and 50-day MA’s. The different indexes made an attempt to rally on Friday but the bounce stalled at the 50-day MA of the various indices and the different indexes closed near their lows for the week. The major averages finished the period very oversold by several measures however, which could lead some investors to buy dips next week. Stochastics were below 20 for the DJIA, S&P 500 and NASDAQ and the Market Edge/S&P Short Range Oscillator (SRO) finished the week at -7.82%. Finally, secondary indexes, the small cap Russell 2000 and DJ Transportation Index and Philadelphia Semiconductor Index, which market technicians would like to see lead the market higher and lower, underperformed the broader market. Underlying breadth was very negative with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, falling sharply showing most stocks remain under distribution. In addition, new 52-week lows exceeded the new highs and the numbers expanded throughout the week. Investor sentiment, which had recently returned to a more normal condition, is once again getting overly bearish but hasn’t reached extreme levels yet. When these indicators become overly bearish, they are regarded as contrarian indicators and can hint that a bottom could be near. 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 Negative at -1, down two notches from the previous week. Cycles B and E are bullish, while Cycles A, C and D are bearish. The CTI is projected to remain negative into November.
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 negative at -6, down 2 notches from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 7724 units while the number of new 52-week lows exceeded the number of new highs on each session. Breadth was also negative at the NASDAQ as the A/D line fell 6371 units while the number of new lows out did the new highs on five days. Finally, the percentage of stocks above their 50-day moving average dropped to 35.7% vs. 73.4% the previous week, while those above their 200-day moving average fell to 23.7% vs. 36.1%. 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 Positive at +3, up a notch from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 8/31/22 shows outflows of $10.6 billion.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bearish as of the week ending 8/26/2022 (DJIA – 32283.40).
Ask Mr. Seifert
Question: What Is IV Rank (IVR) And IV Percentile (IVP) And Why Do I Care?
Answer: Implied volatility rank (IVR) is a statistic measurement used when trading options. It reports how the current level of implied volatility in a given underlying compares to the last 52- weeks of historical data. That means if implied volatility ranged between 30% and 60% during the last 52 weeks in stock XYZ, and implied volatility is currently at 45%, XYZ would have an implied volatility rank of 50.
Similar to implied volatility rank, implied volatility percentile (IVP) provides insight into the current level of implied volatility as compared to the last 52 weeks of data. Implied volatility percentile reports the percentage of days over the last 52- weeks that implied volatility traded below the current level of implied volatility. Market participants can use both IV rank and IV percentile in conjunction with each other to assess the current level of implied volatility in a given underlying as compared to the last 52 weeks of data.
Generally speaking, market participants often view elevated levels of IV rank and IV percentile as attractive for selling options when it is over 50 and great when it is over 80. Depressed levels of IV rank and IV percentile, under 20 are viewed as attractive levels when buying options.
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