Yo, Pit Crazies,
When trading, I rarely care about the “why.”
That’s because the stock is going to do what it’s going to do – regardless of what I think is the reason.
When setting up a trade, I”m for what I perceive to be the most likely outcome … and I hedge for the other side.
Stuff happens, after all.
And it’s worth noting what’s dominating market cycles for short term catalysts.
In 2020 it was mostly reacting to COVID … 2021 it was stimmy checks and the endless bid for growth tech stocks … 2022 was commodity scarcity and inflation.
2023 is the year of undoing the prior three years. It’s what I will term a “messy year”. A stock picker’s year.
Years like that are not growth years for the market but “orbital periods.” We are walking toward the end of year mostly going sideways, maybe a little up.
The good news is there is a trade for that and a sector to use it in.
Lower Volatility … but Orbiting Stocks
Note the S&P 500 Trust ETF (Ticker: SPY) below. It is moving around but unchanged from last week.
5 day SPY chart
That is an orbiting market and one where the ending ranges predicted by volatility look high. This is what is known as the volatility risk premium (VRP) in financial markets.
It appears the options are priced too high based on how stocks close every day. The opportunities are different in 2023. The massive, sexy moves of 2022 are fewer and farther between, but the orbiting market is an opportunity.
Right now, stocks are mostly going sideways and fertilizer stocks are riding high on earnings and low valuations. That is a great recipe for call calendars.
Mosaic Inc (Ticker: MOS) six-month chart
Catch more of my watchlist live tonight at 5:30 p.m. ET.
To Your Trading Success,
AG