The market is on edge, as concerns regarding the traditional seasonal behavior of a bullish end of year are coming into question. Tensions with Russia and Ukraine weighed on the market early on, but then, buyers of the market returned. And now, the main question I find myself asking is who is in control of the next move?
To determine whether the bull or the bear is in control can be a difficult analysis when the market is chopping. A chopping market is an indication of neither the bull nor the bear being in full control. Instead, there’s rebalancing of portfolios and short-term traders taking a stab at the next move. Short-term traders are trying to capitalize on the swings while long-term investors look for good values.
And the market digests it all. As we look at the S&P 500, we can see the chop:
SPY is finding technical levels that can be used to define risk while creating entry points. The pre-election high was made on October 17th at a price of $586.12. Each of the last 3 trading days have found their lows just below that level, and now we seem to have firmly established support, at least for now. There seemed to be a significant risk of global fundamentals that could have created a risk-off scenario, but instead, the market jumped to levels above the highs of Friday’s bearish move.
In the end, the question remains – who wins out? Will the bull continue to buy and push us to new highs as we often see on a seasonal basis? Will the risk-off behavior drive the market counter to the normal end of year behavior? Perhaps the best trade can be found from this uncertainty – the market may see an increase in trading volume as the battle continues.
If the market continues to see uncertainty and reallocation of investment themes, there’s a potential for a big winner – the exchange! Trading volume generates trading fees, and whether the trade thesis is bullish or bearish, the exchange gets paid. Looking at NDAQ, it seems the market is considering that already:
Testing highs, NDAQ looks prime for a bullish move. If the prior high holds and the value cannot appreciate, there may be no trade, but on a small move of about $0.50, NDAQ can test the waters of a new high, which can trigger swing trading bulls. And I can leverage that trade with options for a potential outlier move. Whether NASDAQ continues to drift higher or it spikes higher on increased trading interest, the bullish options trader can certainly profit, and so I’ll look at options for a potential outlier move once I see a new high.
Bulls and bears alike can profit in this market, but the key for me is to find a name that has a good balance of probability of success and return on my trading capital. With setups like the one forming in NDAQ, I can certainly see a way to profit on trading interest with a market agnostic view, and that seems like a higher probability of success for me than simply expressing a bullish or bearish view.
If you are looking for outlier setups with options like this, take a look at my Outlier Watch List for potentially explosive options trades with defined risk!
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. And if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@OptionHotline.com
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