Well one day and that was it for the bears as all those buyers that had been waiting to take advantage of decent down day came back in. Still market internals whilst quite positive did not equal the previous day's falls. Cumulative ticks finished at 30,000 after flat lining at 1pm ET. A/D lines for both the NYSE and Nas were +1500, +1000 respectively, while breadth finished at 70% for both exchanges. Volume whilst higher than the 30 day average was well down on the previous day especially in the afternoon session which is where a lot of volume was sold the day before. I think the fact that cumulative ticks were unable to maintain any sort of buying pressure/sentiment in the afternoon is probably a clue that it's not all blue skies ahead for the bulls.
I'm expecting some further weakness and so are some of the quant studies. There are also some noticeable technical divergences appearing as well so this could well be the close to the swing high of the current up leg. I'm inclined to take a few sideways to bearish positions here as well as bet that volatility will rise in the coming weeks. This fits in nicely with my theory that the market is setting itself for a buy the rumour, sell the news after the FOMC meeting announcement. It wouldn't surprise me as this has happened many times before and is common market/herd behaviour. ie people come together like lemmings all expecting some pie in the sky news and the reality doesn't quite match expectations (after all no one knows how much the Fed is going to expand its balance sheet if at all).
On the trade front, I jumped into NFLX yesterday as well. I bought two BWB's, one on the call side and one on the put side. On the puts I bought the Nov 140/135/125 for $0.60 credit and on the calls I bought the 175/180/190 for $0.23 credit. NFLX reported last night and jumped from $153 to $164 after market. Interesting given the straddle was priced at around $22. I'm now in a decent position on this trade if NFLX continues its upward climb. I'm really starting to get a feel for these earnings plays on volatility skew and I'm going to refine my strategy somewhat with my strike selections. I have BIDU on my radar as potential candidate tonight and so will test it out on that. Given my sideways to bearish view I'm thinking of selling some call spreads on one of the major indexes depending on which one is overpriced. Buying some units here is also not a bad idea. More later........
Also some good posts on other blogs. One here from Corey at Afraid to Trade and one from Babak at Trader's Narrative.
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