Simpler Sentiment – Weekly Wrap Up 9/23/16

Despite the stall on Friday, it was a good week for equities. The S&P 500 climbed back near last month’s highs after the Fed announcement while the Nasdaq 100 and Russell 2000 put in a new all-time highs on Thursday.

Most of our traders were bullish in the sentiment reading on Monday and none were bearish. Equities climbed on Wednesday after the Fed announcement that they would leave rates alone for the time being. The Indexes regained the ground lost two weeks ago. The action has pushed the VIX back down around 12.

Now that the rate increase is put off for a month or two, the attention is likely to turn to the political front, kicked off with the debate on Monday night.

Chris thinks traders will be “sitting on their hands” until after the debate, and today’s action speaks to that. He thinks the SPX is following the NDX higher, but now it is “at resistance and overbought”.

John sees that we “have a situation that is very similar to March 2000 with the Nasdaq at new higher, SPX just off its highs, and Transports a year away from old highs.” But while there is the fear of the downside and lack of interest in buying this market, “there is no point in fighting the tape!”

Carolyn remains bullish, while Tony comments that “The Dow Jones Industrial Average has to trade 20,000 first before it can trade 25,000”.

Tucker noted the positive action in stocks and the new high in the Nasdaq. “However the S&P 500 still needs to clear resistance at the 2180-2190 level, which will be a key level to watch next week. If it can’t breakout, we could see another pullback.”

Once again, we are faced with a market that doesn’t seem to present too many great plays. John is looking at stocks that have been recently consolidating and are breaking out to new highs or poised to break out to new highs. Given the high level of the markets and low volatility levels, it is also worth looking at those stock replacement strategies. Using calls or various call spreads, including various types of butterflies, is a great way to continue to play the general trend of the market (not fighting the tape) while significantly limiting the downside risk.

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.

Leave a Comment