Trying to think a step ahead of the market… this is the scenario I envision…. After the Moody downgrade of USA debt late Friday, the market opened lower Monday then rallied all day. With this price action it appears that the bears fumbled the ball. And it emboldens the bulls. 

However we are seeing a lot of evidence that instead of being really scared by the March – April decline, the buy the dip mentality really took hold among retail traders. This is short term bullish as there are buyers, but longer term it is not bullish at all. 

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Hence my scenario is one where this rally squeezes a few more shorts, attracting a bit more money off the sidelines, before a fresh wave of selling occurs. The way I am positioned for that is I have a couple calendar spreads that ultimately lean bearish. These are long July puts, short May 23 puts, looking to continue to sell against the long dated, rolling and changing strikes as dictated by market action. The two stocks I have picked for this are Zillow (Z) and Dell (Dell) which I think are good candidates ultimately for lower prices. 

Thanks,

Joe

P.S. Want to see what I am looking at in the market live? How about see what set up I am watching as it plays out real time? I am going to be joining John Boyer for an Eye Opener market chat on Thursday May 29th at 9am ET. If you’d like to be in the room with us and ask questions, grab your spot here. The room is small so sign up early.