I thought we would trend day up Friday and we did. I also thought they would reach for select stocks that were lagging like Pepsi and they did not do that. I liked Pepsi at 167 initially but I didn’t buy it. The reason not to buy it was twofold — first the broad market gags higher, Pepsi gaps lower — second the call options are really expensive and hand in hand with that no matter which way the market goes the options tend to shed that extra time value which cuts the winners and exacerbates the losers. By the way, you don’t need a sophisticated formula to tell you what is “expensive” or “cheap”. Watch the option ladder and extrapolate if the stock moves $1 or $3 or $5 where will the option be priced? If you do that for Pepsi and then for TLT — which I am long —- you should immediately see what I am talking about in terms of relatively “expensive” versus relatively “cheap”. In my calcs, TLT is a much better “deal”. You do this with an eye to relative recent volatility and what seems like a reasonable move in the stock. Keep in mind the market isn’t always that efficient at pricing and current flow and sentiment can skew everything. I don’t buy what I perceive as over priced options.
For Monday I think the IWM ETF (Russell 200 mid caps) has to start to move up for this market to keep a floor under it. If it does TLT is very likely to get going as well, as lower rates are most beneficial for the mid caps. Can’t chase the AI stocks up here, so we absolutely need this market to broaden out very soon, or the rally is not sustainable.