Hey There Income Hunters,
Those who joined Mark Sebastian and Andrew Giovinazzi for yesterday’s OP Markets Show were treated to insightful and tradable market intelligence.
Mark, who gained so much insight from trading SPX early in his career, revealed a mid-month pattern heading into option expiration, which is the third Friday of every month …
The markets are heading into expiry on Friday of next week and knowing how this pattern has played out the past few months will give you an edge.
I also produced some interesting data on why we should expect followthrough — and the sector to focus on to get long for the next move higher …
The Monthly S&P 500 ETF Trust (Ticker: SPY) Correction
As the graph shows below, SPY has corrected anywhere from 2.5% to 4.5%, for four consecutive months, either right before or right after option expiration:
This is not a coincidence since, as Mark will tell you, a lot of gamma hedging occurs around expiration.
After Friday’s trade in SPY (-77%), it looks like there was early positioning for this anticipated move.
That could mean we bottom out in the early-to-middle part of next week and make another move higher …
There was a lot of online discourse this week about a gap forming between S&P projected earnings growth and the downgrades to GDP projections in the upcoming quarters. This may push the indices down a bit further, providing an excellent opportunity to play for a move higher off the 50-day moving average.
So, here is a sector ETF I think can add to your gains on a rally …
Real Estate Select Sector SPDR (Ticker: XLRE) for Alpha Seekers
For the past six months, XLRE has been the top- performing sector in the S&P 500. It is up almost 27%.
I have documented how the Fed has been buying extra mortgage bonds every month to help the real estate market …
This should continue, which will support XLRE — especially in a stagflation environment when XLRE is historically a great performing sector anyway.
XLRE has blown off some steam after it’s last move higher. It hasn’t tested the 50 DMA since March, when it crossed it and then came roaring back.
We could see a similar performance next week, and the $46.25 area looks like a good place to execute a low-risk high reward short-term option play.
Bring It Home
I will discuss this opportunity on Monday during my Macro Monday Live Event at 11 a.m. — which is an exclusive piece of the Trading Legion and Pro programs.
Please join me to discuss the key data and trades you need to know about during the week ahead — including a must-have XLRE play.
Have a great weekend and as always …
Live and Trade With passion My Friends,