Three seasonal effects in the stock market begin around Thanksgiving, and this year it’s time to buy this asset class

- Advertisement -


The stock market started the week with another uptrend as the benchmark S&P 500 broke through the resistance of 3900 points.

- Advertisement -

In fact, the index rose till 4020 but then ran into trouble. There is support at 3900, but if that level is breached, the recent jump will indeed be one. false To spread Hence there is a struggle going on between the bulls and bears to control the current levels.

- Advertisement -

SPX is still in a downtrend, as indicated by the heavy blue lines on the chart with the index below. The horizontal red lines indicate support: 3900, then the early November low of 3700, and finally, the yearly low near 3500.

The recent rally did not reach the 200-day moving average (currently at 4070 and further declines) or the bear downtrend line (near 4100). If support holds at 3900, there is still a chance that those above levels could be challenged, but, frankly, it looks like the bulls had their opportunity and didn’t seize it.

- Advertisement -

The McMillan Volatility Bands (MVB) remain in effect as a buy signal, and are targeting the +4σ “Modified Bollinger Bands”, which is currently above 4100 and rising.

Many of our internal indicators have been positive from the October bottom and during this rally. For the most part, they haven’t started rolling out sell signals yet, but some are starting to falter.

The equity-only put-call ratio remains on a buy signal as it continues to decline. The CBOE equity-only put-call ratio also remains a buy signal, although it posted a much higher number yesterday (indicating extremely bearish), which is in line with other data points for that indicator.

Breadth hasn’t been the greatest this rally, and the Breadth oscillator has flipped back and forth from buy to sell signals. If today’s negative overnight action sustains throughout the day, they are about to give a sell signal. This is our first indicator to generate a new, strong sell signal.

The number of new 52-week highs on the NYSE remains low, so this indicator (new highs vs new lows) never did Generate a buy signal. In fact, it has been on a sell signal since last April.

CBOE Volatility Index VIX,
-3.38%
There has been a small amount of bounce in recent days, but this in a situation that is generally bullish for stocks.

Firstly, the “Spike Peak” buy signal that originated about a month ago has “exploded”. That is, the trading system we built around “spike peaks” calls for exiting the trade after 22 trading days, and that has been reached. Hence there is no “spike peak” buy signal at this point of time.

Second, there is a new $VIX trend Buy signal as the 20-day moving average of VIX has crossed below the 200-day MA. This will remain in effect until $VIX itself pulls back above the 200-day MA, which is currently at 26.70 and is starting to decline. Since VIX is near 25, the new buy signal is still somewhat weak but safe for now.

Construction Volatility Derivatives is a solid bullish indicator (for the stock) at the moment. That is, both the term structures of VIX futures and the CBOE Volatility Index are upward sloping. Furthermore, VIX futures are trading at a premium to the VIX. November VIX futures expired yesterday, so December is now the month ahead.

We will now look at the December vs January VIX futures prices. If December should break above January, it would be a new bearish event. Currently Jan is trading healthy 1.85 points higher than Dec, so there is no imminent threat of selloff on that front.

In summary, we continue to maintain a “core” bearish position due to the downtrend on the SPX chart. As long as a rally can’t break that upper blue line, it’s a bear market, and “core” status is warranted. However, we have also traded other confirmation signals around that “main” position (mostly successful), and we will continue to do so.

New Recommendation: Thanksgiving Seasonal Purchase

There are many seasonal factors that come together towards the end of the year. In short, they are 1. The Post-Thanksgiving Rally, 2. The “January Effect,” and 3. The “Santa Claus Rally.”

These include the entire period from the day before Thanksgiving to the second business day of New Year’s. In addition, small-cap stocks (as measured by the Russell 2000 Index RUT,
+0.58%
) outperform large-cap stocks over that time frame.

The Russell 2000 is tracked by the iShares Russell 2000 ETF IWM,
+0.65%,
We buy IWM calls at the end of trading the day before Thanksgiving and exit the position at the end of the second trading day of the New Year.

Since Thanksgiving is next week (before our next newsletter), we’re making a recommendation today.

At the close of trading on Wednesday, 23 Novemberthird,

Buy 2 IWM Jan (20that-the-money calls

and 2 IWM Jan (20th) calls with a price of 20 points higher.

If IWM accelerates during the holding period, we will adjust this position, but initially there is no stop for the position, so the entire debit is at risk.

New Recommendation: Philips 66

A new put-call ratio sell signal is generated by weighted ratio in philips 66 psx,
-0.67%,

Buy 2 PSX Jan (20th) puts 105

Priced at 6.00 or less.

PSX: 106.79 Jan (20th) 105 Put: 5.60 Bid, offered at 6.00 We will hold it till weighted The put-call ratio remains on the sell signal. That is, as long as the put-call ratio is rising.

follow up action:

Unless otherwise noted, all stops are mental closing stops.

We are using a “standard” rolling procedure for our SPY spreads: In any vertical bull or bear spread, if the underlying hits the short strike, roll the entire spread. he will roll UP In case of call bull spread or roll below In the case of the bear spread. Stay on the same end, and keep the same distance between strikes unless otherwise instructed.

Long 1 SPY expiring on Nov (18th) 352 Puts & Short 1 Spy Nov (18th) 325 Put: This is our “original” bearish position. We want to hold a position here as long as SPX remains in a downtrend, so let these options expire and December 2 (16th) 375 Puts & Sells Dec 2 (16th) puts 355.

Long 1 SPY expiring on Nov (18th) 396 calls and short 1 SPY Nov (18th) 416 call: This trade is based on the MVB buy signal, which was set up on the morning of October 4thth, Since the SPY traded at 396 last week, the spread has rolled 20 points to each side. Sell ​​the expiring November spread now and replace it with the following: Buy 1 Spy Dec (23third) Sell at-the-money calls and 1 SPY December (23third) Call price 16 points higher. The goal of this trade is for SPX to trade at the upper, +4σ band. The stop for this position would be if the SPX closes back below the -4σ band.

long 1 expires SPY Nov (18)th) 387 calls and short 1 SPY Nov (18th) 407 Call: The spread was bought in line with the latest VIX “Spike Peak” buy signal, which was confirmed on Monday, October 17.th, The spread widened when SPY was trading at 387 last week. We are now going to exit this spread (and not replace it), because the trading system we built around “Spike Peak” calls for an exit after 22 trading days, and that time limit has passed. It’s over

Long 300 KLXE: Raise the stop to 13.80.

long 2 WRK Jan (20th) 32.5 Call: we will hold on until weighted The put-call ratio remains at a buy signal.

Long 1 Spy Dec (2Ra) 371 Put and Short 1 Spy Dec ( 2Ra) 351 Put: When the breadth was negative on the NYSE on Nov 3third, we established this position. ,

Credit: www.marketwatch.com /

- Advertisement -

Recent Articles

Related Stories