The absolutely wild ride since the start of the COVID crisis has broken about every rule traders have traditionally believed in. The climb up following the crash was like the Energizer bunny and just keeps going and going. It shrugged off domestic political turmoil, worker shortages, flip flopping lockdown measures, threats of inflation, and basically everything that was thrown at it.
And it has pulled off a historic rally.
Take a look at the chart of the Dow below:
It has pushed through to record highs. And now, once again, it is facing seemingly insurmountable odds. Fed intervention, another round of potential lockdowns, global unrest. It isn’t crazy to feel like this rally could end soon, but it isn’t the time for panic.
This type of run has occurred in the past and it has provided signs of exhaustion when it is done and ready to reverse.
Above is a chart leading up to the Feb 2020 crash. Even if you missed the early warning signs that had you tighten up your risk strategies and take an option position that would profit from a drop when the Dow broke the 50 day and then came back to drop below the 10, you still could make your move at the black arrow and get short. As painful as it would be, it is better than waking up at the red arrow and simply weeping.
There are many similarities to the period just before the crash. COVID had been in the headlines, but the market waited until late Feb to react. Delta is a huge story right now with everyone watching for the reaction.
While we could see this climb shake off the current headlines, it is wise to look at some hedging strategies that not only protect your current investments, but could benefit from a significant move.
Lee Gettess has developed some momentum signals that are just uncanny at recognizing and exploiting shifts like we are potentially looking at right now. His offer to get his guide is a smart way to make sure you are ready when things change.
Keep learning and trade wisely,
Market Wealth Daily
PS-For other options strategies to consider, check out the articles we have on Market Wealth Daily.