Bank Failure, Hot Jobs Report Sink Stocks
The stock market sell-off continued Friday after a banking scare and a strong employment report.
Sudden, and often unexpected, economic news continues to spur wild reactions across the market.
More of the same is expected ahead, but there is good news for retail traders.
The team at Simpler Trading continues to find winning setups in a topsy-turvy stock market.
Bank loss fuels fear of financial turmoil
The financial sector took a big hit starting Thursday on news of Silicon Valley Bank (SIVB) failing.
Government officials announced on Friday that the bank’s assets had been seized by the Federal Deposit Insurance Corporation. Silicon Valley Bank is an important lender to the technology sector and was trying to raise capital while facing big losses in bond assets. A run on the bank Thursday sent the financial sector into a tailspin and worsened a sell-off in the broader stock market.
Simpler Trading team member TG Watkins, Director of Stocks, alerted traders via social media as the bank’s failing impacted the market on Thursday.
“News of Silicon Valley Bank completing a fire sale of its bond portfolio has led to more selling than what we would typically expect the day before the non-farm payroll report,” TG said on Thursday afternoon. “As this news permeates, the market is fearful of the greater repercussions and what it could mean.”
“The Financial Select Sector SPDR Fund (XLF) was getting hit especially hard with the news,” TG said, noting how this could affect other banks. “We can see that with XLF and we can see it in all the regional banks.”
TG explained that the Silicon Valley Bank sinking is wrapped up in the FTX Trading Ltd. situation. FTX went bankrupt as a cryptocurrency exchange and crypto hedge fund. This has affected crypto companies, and accompanying financial partners, throughout the market.
“So there’s a lot of concern, a lot of people worried that this might actually be a little bit of a systemic situation going on,” TG said. “There might be a little bit of contagion going on and the markets are not liking it.”
Caution urged after another day of stock losses
The stock market added to its Thursday losses with spirited selling on Friday.
The Dow closed at 31,909.64 points to fall 1.07% (dropping 345.22 points in the Friday session). The Nasdaq dropped to 11,138.89 points for a 1.76% tumble while the S&P 500 toppled by 1.45% to 3,861.59 points.
TG cautioned traders to watch for other financial stocks getting caught up in the aftereffects of the Silicon Valley Bank insolvency.
“Take a look at some of the financial tickers where anything financial is just getting absolutely hit (Thursday),” TG said. “I think we need to be aware of this and I think we need to be cautious.”
“Trading is the process of finding your path and the discipline to stay on it.” – TG Watkins
A situation like this – a run on a major bank – can create a wave of losses in the market.
“This is kind of the area where some black swans like this do come out of the woodwork and you need to be careful,” TG said. “When these things hit, they really hit. It has been a pretty rough day today as far as some of these financial names.
February jobs report ‘hotter’ than expected
Friday the financial sector uncertainty was magnified by the market reaction to the better-than-expected nonfarm payroll report for February job numbers.
The U.S. Labor Department posted that employers added 311,000 jobs for the month which surpassed the estimated 205,000 jobs. This was the 11 straight month of jobs growth topping estimates (Bloomberg).
Negative market reaction to the news was spurred by fears that the Federal Reserve (Fed) may use strong jobs data as reason to further raise federal funds interest rates. More Fed hikes are expected at its meeting later this month.
Traders recap profitable February trades
Navigating the economic news gauntlet this month can be taxing for retail traders.
Our team at Simpler Trading wanted to share some positive news from trade setups over recent weeks. Simpler’s traders work daily to find winning trades in this volatile market. Here are some trades to review:
Chris Brecher, Senior Managing Director of Stocks, prefers trades with limited risk and uses simple setups to target consistent gains.
“When I saw this bear flag, instead of shorting stock, we bought a put debit butterfly at 2.67,” Chris said. “When it reached support, we sold the spread at 3.30.”
Here’s the recap:
- 2/28: Bought a TSLA broken wing butterfly at 2.67.
- 2/28: Sold the TSLA Butterfly at 3.30.
- Produced a quick $63 per contract.
“Have 3 reasons to do a trade, but only one to exit a trade.” – Chris Brecher
Allison Ostrander, Director of Risk Tolerance, works to provide any trader a new perspective on investing.
“I profit recycled several times to lock in profits, protect risk, and create bonus trades,” Allison said.
Here’s the recap:
- 2/1: Opened the META trade for 1.28 risk per contract.
- 2/3: Closed entire position at 13.31 profit per contract.
- 1,039% return on risk.
“When you take a look at the finer details of an option’s strategy, you will see an abundant amount of opportunity while maintaining your risk.” – Allison Ostrander
Sam Shames, Vice President of Options, works to understand the markets through technical analysis and recognizing the distinct psychology and correlations of each chart.
“I took the trade off of a major support shelf plus deep oversold readings on intraday,” Sam said. “A Fed official spoke soon after and the market started to move.”
Here’s the recap:
- 3/2 – entry – SPX 3990/4000/4010 call fly @.55.
- 3/3 – exit – @1.25.
- Total profit .70 per contract for 120% total return.
“The first rule of any game is to know you are in one.” – Sam Shames
Kody Ashmore, Director of Weekly Options Strategies, strives to produce income for a source of living while actively paying himself weekly while managing risk.
“For this drama free trade, price was stalling under daily resistance with multiple sell signals,” Kody said.
Here’s the recap:
- 2/09 – Entry was made when price broke VWAP & 30-minute 21-day EMA then retested and failed.
- +$585/ +83%.
“Worrying is like a rocking chair, it gives you something to do but never gets you anywhere.” – Kody Ashmore
Bruce Marshall, Senior Director of Options and Income Trading, works to improve the risk vs. reward ratio in trading without devoting large amounts of time sitting watching the charts.
“The trade was an iron condor on the SPX,” Bruce said. “The idea was that we would have a range-bound market for the short term and capture elevated premium by selling an iron condor. The trade worked great and was an easy-on and easy-off trade. I took the trade off a little early and if anyone kept it into expiration, it did go to full profit of $1,050.”
Here’s the recap:
- 2/01 – sold the iron condor at $1.05.
- 02/06 – closed it for a debit of .45.
- Profit was $600, a 12% gain in three trading days.
“Courageous convictions will drag your dreams into existence.” – Bruce Marshall
To trade with these and other members of the Simpler Trading team, check out our online community.