Am I convinced?
Is this the move that tells me that I should buy because the fall is over? Am I convinced that we’re falling into a bear market? Or am I still convinced that we’re going nowhere?
For now, it’s the last one. I’d love to tell you we’re going into an aggressive trending market, but I just don’t see it. However, there are sectors that can be bought, sectors that can be sold, and sectors to just stay away from.
(Be sure to check out the note at the end of this article)
Let’s start with the main culprit of this boredom: tech (with the NASDAQ 100 ETF QQQ):
As you can see, QQQ tested lows, then bounced, and is now back near resistance of that recent highs, so it really has a lot of work to do to go up, and a lot of work to do to go down. That’s really not that interesting for a leveraged market play. There are certainly options plays to make in that circumstance, of course, so keep an eye out for my next webinar where I’ll introduce you to some very leveraged plays for seemingly boring markets, on top of leveraged plays for fast moving markets. There are a ton of ways to play options, and this sleepy market isn’t a bad thing if you know how to play it.
But, right now, we’re looking for excitement. So, let’s take a look at interest rates with my favorite bond ETF, TLT:
Again, it’s a bit of a snooze-fest, although a bit more interesting if it can start to get some bullish indicators. But, the fact that it’s holding below the 10-Day Moving Average is telling – perhaps we have a bear market coming that we’re just not pricing into tech. Now that could get interesting. And alternatively if TLT can take out the 10-Day Moving Average to the upside, we may have an upside swing in a few ETFs that could be very quick and powerful, as well.
So, finally, let’s look at the utilities companies. They sound boring because they are. But they tend to be highly correlated to bonds, and if we get a drop in interest rates that causes bonds to rise, we should see a similar rise in utility companies. They tend to pay larger than average dividends and so are often considered an alternative to fixed income products. So, let’s look at the ETF XLU:
If XLU stays above the 10-Day Moving Average (and if TLT does, as well), I could see a spike of 10% back to the prior trading range. That would simply put XLU (and TLT) back into the trading range that QQQ is testing once again. It doesn’t seem unreasonable at all. Fortunately, XLU tends to be a lower volatility index – ie, it tends to move less than many other indexes. That means that the options tend to be a lot cheaper than many other indexes. So, I’ll certainly be looking at the names inside of XLU for my next Outlier Watch List, where I outline names that could be starting into a short-term leveraged move or a long-term trending move.
As always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
PS–I will be releasing a huge announcement in the coming days about an event you will want to make sure you are part of. The last time I had something this big, I took heat for what I revealed. Market Makers are still furious when stuff like what I shared is made available. Watch your inbox and Market Wealth Daily for the details.
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