Indices achieved new highs this week as we forecast last week. Strong bank and tech earnings provided the fuel needed for new highs across the Dow, NASDAQ, S&P 500, and the Russell 2000.
The rally softened Thursday and Friday as big name earnings are awaited next week: Google and Facebook, for example.
The Fed will also talk interest rates next week and traders are watching closely to see if the dovish comments from two weeks ago still stand, or if Yellen will be slightly more hawkish.
The VIX sank to another new low this week and looks to close the week sub-10 again. Markets remain in rally mode and will be fueled by earnings and the Fed next week.
It is hard to expect much more upside from here but there isn’t anything to take the markets down right now either. Therefore, look for a gradual drift higher but likely more sideways movement than anything in the short term.
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Jul RUT 1280/1290 put trade, $1.02 credit
Jul RUT 1470/1480 call trade, $0.76 credit
Jul SPX 2490/2495 call trade, $0.65 credit
Jul SPX 2360/2365 call trade, $0.60 credit
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This week’s breakout to new highs has us eyeing selling out of the money calls. However, with earnings season starting off strongly and option premiums at historic lows, just look at the VIX, we are being very cautious in entering new trades. We have learned our lessons chasing trades into rallies. Patience always wins this game.
A new trade is likely Monday or Tuesday, especially in the presence of a continued move higher.
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