Hey Traders,

Good News! We are beefing up this product. Starting today, you will be receiving 2 emails a week covering important information.  

On Mondays, you’ll receive my Rift and Snap Watchlist. This will be 3-5 potential rifts and snaps that we might trade during our Wednesday meeting. On Fridays, I’ll be giving you a breakdown of what rift and snaps I’m seeing in the broad market indexes. Both will also have some market commentary and position updates.

Market Commentary:

The market was down the entire day. Then at 3:30 p.m. ET, the S&P 500 made a 30 point reversal and ran all the way into the close. .The end of the month can be a powerful force, and you saw it in action on Thursday.

The Dow of course was up all day. Salesforce Inc (Ticker: CRM) is in the index, and that stock blew higher on Thursday.  But the month is over, and as we head into December everyone is expecting a “Santa Claus Rally.”

Here’s the thing – Santa Claus rallies come pretty close to Christmas … AFTER December expiration. December expiration is the 20th this month. Until that expiration happens, we are in a position to move in either direction.

Looking at longs, I am getting a little nervous about the current level. Why? Bonds.

Bonds have had a HUGE rally:

If we get follow through from Thursday’s selling the market could go sideways. I’ll say this one more time – watch the bond market.

Best way to follow the bond market is to read and follow Bill Griffo. The man has been SO right. If you aren’t reading his newsletter, change that. Also check out his Power Income Trader – it puts rate moves on your side.

Index Update:

Some weeks this section will cover sectors of the S&P 500; others, like this week, it will compare the 4 major indexes to each other.  

Year over Year, here’s how the indexes have faired:

As you can see, the NDX is the big winner here. It’s up almost 3x the S&P 500 … which is interestingly up about 3x the Dow Jones Industrial Average. The big loser continues to be the Russell 2000. The index simply cannot get off the mat.

That being said, take a look at where the SPX and NDX are relative to the last two years:

This chart makes the Dow Jones less appealing. The QQQ and the SPX are both essentially flat. The RUT … is still a huge stinker.

Pulling back to 5 years, there are some really important things to point out:

The NDX,  SPX, and DJIA are all just a stone’s throw away from being at new all time highs. The Russell 2000 … not so much. It has a TON of ground to make up.

If you want to go long the market, I really like a long in the Russell 2000 as the play. I would consider going long the IWM via a call and then I would hedge it with a put on the SPY or a name like ARKK, which like RUT is a high momentum play.

I’ll dig into this more on Wednesday when we meet, but I am strongly considering a long IWM play with a hedge somewhere else.

CLX/CL: Both were up on Thursday,  CL was shockingly strong considering the paper flow from Wednesday. This play might end up a loss on CL and win on CLX.

KRE/XLF: KRE looks like it might take off. We are seeing huge bullish flow in the name and I expect a break out.

Your Only Option,

Mark Sebastian