Why I’m Taking a Wait-and-See Attitude Towards the Market

Why I’m Taking a Wait-and-See Attitude Towards the Market

Posted On July 30, 2021 2:34 pm

Not to toot my own horn, but the narrowing-of-breadth caution I’ve expressed and the possibility that FAAGM gang (Facebook (FB) Amazon (AMZN) Apple (AAPL), and Microsoft (MSFT)) earnings reports would garner a “sell-the-news” reaction, pretty much played out to a “T.”  Now, I’ve mostly moved to the sidelines and will take a wait-and-see attitude, believing the market’s in a fragile flux state. 

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Last week I wrote the following: The QQQ is starting to go parabolic, carried by good earnings from most of tech and the weight of FAAMG hitting new highs.  I’ve repeatedly discussed how the gigatech generals have carried the top line indices higher while there has been major pullback by many of the soldiers. 

These heavy hitters, AAPL, AMZN, MSFT, and GOOGL all report earnings next week.  I don’t doubt their reports will be stunningly strong.  But will they be met with a sell-the-news reaction?  That’s what happened last quarter.

This is why I think it’s worth spending a little money, using the Monday Wednesday expires, or what I refer to as the triple play of rolling to reduce cost basis, to see if there is a correction in the next two weeks. “ 

Despite strong reports, the “sell-the-news scenario” has mostly played out —the final nail being AMZN having a true miss with it tanking some 6% today. 

The QQQ put spread trade we established in the Options360 has closed two-thirds; locking in a 47% gain. Additionally, it’s holding the last third of the position until Monday’s expiration, giving us the possibility to add 27% to our returns. 

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I’ve also closed positions in Walmart (WMT) for a very modest 8% gain over the 55-day holding period, and Electronic Arts (EA) for 42% gain over the 26-day holding period. 

As I recently discussed,  I keep each position’s allocation 3%-5% of the total portfolio. Meaning, I’ll never have an upside or downside life-altering trade.  I’ve experienced the latter and it’s no fun.  However, the steady, consistent gains have now pushed the Options360 portfolio to a positive 27% year-to-date return!  The portfolio’s down to just three positions, well four if you consider cash a position, so we have plenty of dry powder for fresh opportunities.   

Two names I’m eyeballing for new bullish positions are Paypal (PYPL) and Teledoc (TDOC) as both have incurred 20%-plus declines from their highs — now approaching support.  Do not miss our next move! 

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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.