Does Today’s Market Bounce Mean the Correction is Over?

Does Today’s Market Bounce Mean the Correction is Over?

Posted On July 20, 2021 2:54 pm

Stocks are enjoying a big bounce today, recouping most of yesterday’s losses. I view this as a reflex rally and remain cautious. I’m unconvinced the selling is over. As noted yesterday, I closed bearing positions in the Invesco Power Shares (QQQ) and Hilton (HLT) for solid profits.  The Options360 service is now up 24% for the year to date. 

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But I don’t want to be greedy and press my bets.  Instead, I’m moving towards a more neutral position.  As the infamous Jesse Livermore wrote in Reminiscences of a Stock Operator , “it was never the doing that made me money but rather the waiting.” That doesn’t mean I’m going to be sitting on my hands but rather I will be patient and wait for high quality setups that offer good risk/reward.  

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Illustrating my more neutral stance, the one move I made today was turning the bearish Salesforce.com (CRM) bear call spread into an iron condor by selling a bull put spread.  The stock had come down giving us a nice edge, and solidly in the green, but now it is balanced out with little risk. We just need to let time decay or theta do its thing and bring the profits in as the July 30 expiration approaches.  Again, sometimes it’s doing nothing that’s most important. 

But as Tom Petty sang, “the waiting can be the hardest part.” 

Tomorrow I’m going to discuss how option trading has begun to dominate trading making it the tail that wags the dog and how that may help us unearth some unique opportunities.  One hint, it is telling me to remain cautious and look for new bearish positions. But patience is the watchword. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.