Simpler Sentiment – Weekly Wrap Up 10/21/16

As we head into the close, the S&P 500 has reversed off the lows of the day and is on pace to finish out with a modest gain for the week. The SPX had slipped as low as 2130, which would have been the worst close since Monday, but has rallied in the afternoon to be on pace to add about 8 points this week. The Nasdaq 100 and the Russell 2000 have virtually identical patterns.

The VIX has fallen considerably on the week, pushing down from a high around 17 on Monday to 13.33 now, its lowest in two weeks. The VXST, the 9 day Voalitlity Index, is all the way down at 10.65, on pace for its lowest since September 7. The VIX closely follows the actual volatility of the SPX, which is down below 9 percent.

Our traders were cautiously net bullish at the start of the week with a Sentiment Reading of +2. Looking ahead it is hard not to simply focus on the election at this point.

John is certainly looking at that outlook. “For stocks we are in hurry up and wait mode into the election – I think there is a buy-the-rumor, sell-the-news situation for stocks.  Watch the dollar index, the higher it goes, the more the world is telling us it is looking for a flight to safety.”

Chris is watching the Russell 2000 futures (/TF). “If it breaks 1200 then the other indexes will follow.”

Henry is straight to the point. “At this rate I think we just go higher forever. There’s really no point in trying to call the top so I’m going to focus on nibbling long until everything just falls apart.” He does point out that there are ways to get some balance or play the downside, “There will still be a few shorts I like, TSLA, ADP, DIS & SBUX, but other than that focusing on the best of the NQ – NFLX, GOOGL, AMZN and focusing on earnings plays.”

Tony is also to the point, “If you’re not long, you’re wrong.”

Tucker reiterates his points from last week. “The markets are reacting to every little bit of news, but not going anywhere directionally.  I expect the markets to chop around in the same range they have for the past 4 or 5 weeks until the election.”

Carolyn is neutral “unless we can take out the 10/10 high in the SPX (2169)… then bullish again.”

David was looking at the idea that the S*&P 500 could have put in a pivot low at the end of last week, preparing to resume the bull move. “A week has past, but the situation hasn’t changed.  That leaves reasons for bulls to be optimistic, but also still cautious.  We haven’t printed back below last Thursday’s low but we also haven’t continued above last Friday’s high either.  Bulls need it to break out in a purposeful way soon or gravity will take over.”

Interesting Links/Stories from the week:

There is a new fund out from VEST, a CBOE company, that is focused on income generation through what appears to be short strangles or iron condors. (https://www.cboevestfunds.com/defend-distribute#about-strategy )

The stock market is being very, very, quite … (in my best Elmer Fudd voice) (http://www.wsj.com/articles/this-is-no-time-to-be-trading-stocks-apparently-1476990578)

How to think better snd use decision trees. (https://www.farnamstreetblog.com/2015/03/mental-framework/ )

Chris McKhann

Chris McKhann

Chris McKhann has been involved professionally with the stock market for more than 15 years and specifically with derivatives for 12 of those. He started as a stock broker, but quickly moved on to options and futures trading. He spent some time as the Derivatives Product Manager for TD Ameritrade. He was the chief analyst and hedging strategist for OptionMonster. He has been an options trading educator and content provider for many years. His writing and analysis has been featured on Reuters, the Wall Street Journal, Forbes, TheStreet, CNBC and internationally. He has also designed and traded option and futures strategies for prop trading firms and hedge funds as well as managed accounts.

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