Yo, Pit Crazies,
Why am I a conditional trader?
Aside from that being my training, market sentiment changes like the weather in Maine.
Yesterday it was sunny and cool. Today it is winter wonderland again …
The view from my cozy chair.
The point of underlying wild weather swings is this …
Yet another Fed governor, not named Bullard this time, said it was possible to pause hikes this summer.
He did not say how high things could go in the meantime, just that the Fed might pause.
And just the word pause set things on fire again.
Cue the standard 100-point rally from Thursday morning. Sentiment was terrible all week, now it is downright giddy.
Where do we go next?
All Signs Point to More Rally
I took some profits Friday. When the market gets to a profit level it is better to take them and move on.
I was bullish in the morning, only because Bostic said pause. The question is if the market was feeling the same.
Let’s consider volatility conditions into the close Friday.
Option volatility is a reflection of how the market feels. It is the direct expression of expected ranges by the folks who are trading every day. When volatility drops, expected ranges tighten.
The funny thing is, we can rally in one direction and break out of the range … and volatility can still stay relatively low.
On Friday, traders took volatility down in anticipation of the Fed taking a chill at their meeting on the 22nd.
I think we rally next week into the number since that is the latest burst of momentum. Remember, an 18 VIX assumes moving 1% a day at least is SPX. That is almost 5 points a day in SPDR S&P 500 Trust ETF (Ticker: SPY).
The low vol sets up for Mar08/09 410 call calendars in the SPDR S&P 500 Trust ETF (Ticker: SPY) …
That 410 is the next big number and we have spent the most time around that is 2022.
The Rundown
Power Income Trader
Bill still has the power and closed the Invesco QQQ Trust (Ticker: QQQ) Mar10 291/289 put vertical spread for a 12% gain.
SPYMaster
I closed the SPY Mar17 405/395 put vertical, VIX Mar22 21 puts for a 16% gain.
Option Shopper
Licia rocked a quick golden trade in the SPDR Gold Trust ETF (Ticker; GLD). Mar10 171 calls closed for a 37% gain.
To Your Trading Success,
AG