New lows for the year are in. What happens next?
In last week’s outlook, I mentioned that if we don’t recover as early as Monday, I fully expect the markets to start testing the lowest point for this year (i.e. the June lows). Well, we are already here. DOW has already made a new low for the year, and Nasdaq and S&P 500 are almost there.
I am not seeing any fundamental reason that can lift these markets next week. However, we are at a critical support area, Nasdaq has sold off 18% for the last 5 weeks, and a relief rally is definitely overdue. if the markets can open and stay green on Monday and Tuesday, then we have a fighting chance of a technical bounce here. But if we open deep red on Monday morning, I fully expect another leg lower. And I might even add some extra put spreads to take advantage of the sell-off.
AUDIBLE VERSION OF MY BOOK IS COMING NEXT WEEK
Amazon link: https://www.amazon.com/dp/B0B781VTZX
The latest edition of my book is available free to all Kindle Unlimited members. An audible version of the book is due to be released next week. If you are wondering how somebody can listen to an audio book with technical charts and financial data, I must say I am pleasantly surprised by how well the book turned out to be. The narrator who I worked with is incredibly talented. As you listen to the book, you can glance at the accompanying charts available right here: https://25k.link/images
I hope you will find “Reading the markets like a Pro,” “The 2022 market correction,” and the chapter on “Scaling up” particularly useful. If you do get the book, kindly drop a review or even just a star rating for me. It will be greatly appreciated.
Link for review
Market moving events next week
- The week is littered with a host of Fed Presidents talking next week. The Fed has shown total indifference to the markets, and I don’t think they have any interest in calming down the stock market at this stage. Except for Powell’s speech on Wednesday, I am not seeing anything of much interest.
- CORE PCE on Friday – Fed’s favorite measure of inflation is being released on Friday. Any positive news on this front can be the trigger that these markets need for a bounce here.
Earnings – None, Nada!
There are no earnings of interest next week. NKE used to be on our list when it was a $100+ stock, but not anymore. Still something to keep an eye on.
Macro Analysis (VIX)
VIX continues to be in correction territory and this means hedging, dropping trading volume which I have been doing for the last 5 weeks anyway.
- I have dropped my trading volume drastically as we are in a deep 18% correction. This is evident in no open trades on the spread tracker after 10/7 expiry.
- I have also been able to effectively hedge all expirations affected by the correction by deploying put spreads on a need basis.
- I am looking to add trades but need the markets to turn around first.
- If we see a big red open on Monday morning, I expect another leg lower, so I will add a couple of bear put spreads in an attempt to take advantage of the sell-off
- CORE PCE on Friday
- If markets open deep red on Monday, I might add a couple of bear put spreads
- If markets open green on Monday, I will have to wait until Wednesday to see if the rally was fake or does it have any legs.
- Even if markets turn around here, I will not go ballistic taking bull call spreads as we have that pesky CORE PCE number coming out on Friday.
We are already in Bear Market territory. And a breach of the yearly lows will cause me to adjust this cheat sheet with new numbers and price targets.