August 20, 2017

Was Wednesday the Bernanke Top?

To be frank, Big Ben’s announcement yesterday was a dud.

Unless…

You are currently bearish. And if you are leaning to the bearish side you just might have something to grasp onto going forward…at least over the short-term.

Shortly after the announcement the S&P (SPY) and Dow (DIA) moved higher, but the higher-beta Nasdaq 100 (QQQ) and Russell 20000 (IWM) never gained any traction. This was the “tell” that should have forewarned the bulls what was soon to come. As soon as Bernanke took the stage at 2 EST all of the major market benchmarks began to crumble and continued so well into the close.

But, what is interesting is that we still have quite a few very overbought ETFs on a short-term basis. Until those are resolved I would expect to see a continuation of the recent decline. A part of me thinks that this could be a decent sized reprieve, but I would need to see the bears push the S&P below 1400 first before feeling really good about a significant spike lower.

Anyway, all of my bear call spreads enjoyed the price action yesterday and wouldn’t mind some follow-through today. A push lower today and I should be able to get out of a few more a decent profit. More importantly, I wouldn’t be exposed the the ongoing fiscal cliff saga. But, even with good news my guess is that Wednesday’s high should act as a nice area of resistance…just reading the tape.

Again, the great aspect of using out-of-the-money spreads is that you can be completely wrong in your directional assumptions yet, due to the margin of error they create, still make max profit in the trade. No other trade offers these types of benefits.

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