By: Steve Smith
Stocks are meandering near recent lows as volume and volatility have both subsided.
The Options360 Concierge Trading Service took action in our recently-established SPDR S&P 500 (SPY) calendar spread with a bullish bias. We took a roll this morning to collect premium and reduce cost-basis. Now, we wait and hope calm markets facilitate two more rolls next week. Remember: We use the triple play of Monday, Wednesday, and Friday expirations; in this case, Tuesday as Monday in Memorial Day) to collect premium and target the SPY hitting $400 next week for a maximum profit.
That aside, patience is the name of the game. Options360 took a bullish position in The Trade Desk (TTD) but closed it down just two hours later to break even. Active trading also means actively “folding” your hands if you don’t think there’s a solid probability of a profit.
The bigger picture: I’m setting my sights on a new target low for the SPY; namely the old 2019 pre-pandemic high which is around 14% lower than current levels.
I’ve arrived at $340 as the downside target with very simple logic; this is from where the Fed dropped rates to zero, pumped liquidity into the system, and Congress spent some $3 trillion in ‘free’ stimulus.
The VIX stubbornly remains at around the 30 level and the capitulatory “whoosh” everyone is looking for remains elusive; most people are still playing with their 2020 gains house money.
The estimated $1.3 trillion that’s been ‘lost’ from the market since August 2021 was from money that was unlikely to be net losses. Yes, for every seller there’s a buyer and different people bought and sold at different times. However, net of all the market’s money from early-2019 to late-2021 is barely underwater.
Any further declines from here will start eating into people’s principal investments. It will be interesting to see how sentiment changes from here to the downside.