The market sharply fell after last week FED’s negative outlook and renewed fears of a second Covid wave plus following recession.What’s next?
This article will review the past trading days and look ahead from a technical point of view. We will also discuss how to apply options to the current market conditions.
On Thursday the S&P 500 dropped more than 4,8%, the worst day since March. The ‘fear index’ (VIX) jumped, reaching its highest level since April. But the markets did not disappoint for too long.
On Friday the market started to rebound. By Monday, the Fed said it will buy individual corporate bonds. On top of that, yesterday’s better-than-expected U.S. retail sales and industrial production data for May significantly helped the recovery.
So what could happen next?
It’s hard to say… Technically the market tested the 200 moving average that now acts as support (see graph). This is confirming a bullish sentiment.
Also, the news is optimistic… but a small question appears in the mind: why did the Fed decide to buy individual corporate bonds if the market sentiment is already bullish? It knows something that we don’t know?
In any case, if today’s market close will be higher than yesterday, S&P 500 could reach the important resistance area located at around 3250 points at the end of this week. Then a consolidation or a retracement will be highly possible.
How to trade this kind of market with options?
We can follow the bullish sentiment with long Call spread maintaining a downside protection with Put spread based on SPX index. This protection could also be spread off as soon as possible with the first daily retracement to have a low/no cost protection.
Thinking about options but not sure yet? There are a couple of ways to move forward before committing to the course or educational signal service. Here is how you can stay in touch:
If you are ready to move forward, then you can choose from:
Marco Doni – ecs.OPTIONS expert and CNBC contributor
The articles are not intended to give any advice on how to invest money, they are just for educational purposes.