Yo Pit Crazies,
It’s rare to see a recession coming.
Everything looks good and then it doesn’t.
Of course, some people saw the 2008 financial crisis, but those were mostly folks in the know about the mortgage-backed securities market (MBS).
Yesterday, banks announced they were setting aside money to increase loan losses and suspending share buybacks. The S&P 500 took it badly and dropped 2% on the open only to rally back to near unchanged (but slightly lower).
The weight on stocks of all the bad things that can happen is heavy.
It’s the Sword of Damocles hanging over the SPX waiting to pound it to 3,000 or lower.
But it won’t. I will show you why you don’t have to worry.
Downside Skew Is At the Low End of the Standard Deviation Range
Skew in the SPX is there for where the market will go next, not where it is now.
Liquidity providers try to price the next move and they always try to overcharge. I should know! It used to be my job until I retired to Maine.
Anyway, the market is not bidding up the downside like in past market turmoil. Once again on a downday, VIX declined slightly. That is not bullish volatility,.
Using my Edge Hunter PitchFork Indicator, SPX skew is at the bottom of the range.That is what Vol Man is showing below. The skew is very FLAT and at the low end of the standard deviation range.
No one wants to pay up for out-of-the-money puts, as VIX is fairly priced at 27%. The real Sword of Damocles is that we have the same market condition for an extended period of time.
If you want to see how to trade that, OP Mentoring will do the trick
The Rundown
Cap Gains
I closed two broken-wing put butterflies in Ford Motor Co. (Ticker: F) and Energy Transfer Partners LLC (Ticker: ET) for 100% gains on credit. The broken wing put fly is a great trade in this sideways market.
SPYMaster
I closed my third win in four SPYMaster VIX/SPY combos yesterday for an 18% gain. We are well on the way to getting the trades to pay for the service. This is with an orbiting SPY, mind you, and very little direction in the market. Perfect for the SPYMaster. Join us now!
To Your Trading Success,
AG