12/19 Recap

Let’s talk about this market and what happened yesterday. So we got that nasty selloff after Powell spoke. The reason you have these violent moves down is these momentum funds unwind trades at all these same levels. In yesterday’s recap I discussed closing up things below 601.44, that was the 21 day on the SPY, we knifed through that with ease and you can see we even closed below the 50 day. An immense amount of technical damage was done to the market, this will not resolve quickly. All pops for now should be sold.

You can see today so far we ran up into the 50 day and rejected thus far, you can also see the 8 ema doing a bearish crossover down through the 21 ema now. For the moment, I would not add anything short term, if you’re day trading that is fine, but I would not look to add to long term positions here. Of course in time the market will be higher, I mean in the sense that this isn’t where the market will recover quickly. The 100 day is the next level of support just over 570 and I would be a seller of puts there if you want to get long the SPY. You could sense the frothiness the last few weeks when all the junk in the market was flying. The rise in momentum trading funds is really behind all of these moves, who do you think is in these recaps daily buying 30% OTM SOUN or TSLA calls? That isn’t Stanley Druckenmiller but those momentum moves go both ways and that’s why you hear the old adage, “ stairs up, elevator down”.

The QQQ looks better because it isn’t near the 50 day yet. I still expect a prolonged period of weakness just because this is losing the 21 ema and these periods happen every few months, I believe this is our 5th this year? Whatever it is, tech will be the first to recover when it is time, it is all we have really at the end of the day. Here I’d look to sell puts around 508 if you want to get long at the 50 day. Longer term maybe some March 480 put sales as the 200 day slopes higher.

The bottom line is don’t go into panic mode here. Understand where the periods of weakness begin, this is one, and don’t overdo leverage. In fact don’t use leverage at all. Start to sell covered calls vs positions, and focus on making a little money that way during the weakness. If you want to play the long put side of things be my guest, I personally do not waste time with the short side, I think just understanding when to dial things back is more than enough for most people. Buying puts is tough because of the constant permabid stocks have so if you’re short you have to be glued to your screens because of the constant buy programs. So just forget the long side of things on shorter term trades until we reclaim the 21 ema and resume an uptrend, if you’re looking at long term 12-24 month trades, it is fine to put on buys like that.

Today’s Unusual Options Activity

Here is today’s link to the database, it will be until the opening bell tomorrow. The rest of today’s trades will be added by the evening.