The indexes attempted to continue the long in the tooth rally again this week but were thwarted handily on Thursday. Stocks went on sale spurred by nuclear threats from both Trump and North Korea. The VIX shot to a new YTD high and closed the week at one of the highest levels in 2017 as well.
Friday was a quiet day and markets closed little changed with a positive bias.
The S&P remains lofty above its 200 day moving average while the Russell 2000 tagged its 200 day this week. Although the price action was strongly negative on Thursday, there was no sense of panic. Therefore, for now, it is simply a rest of price to lower levels digesting the hellacious bull run stocks have had for the last 8 months.
Price action is likely to stay range-bound for the next few weeks but some probes lower can’t be ruled out. No major market dislocations are present so any move lower should be orderly and contained.
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The August positions remain very comfortable especially considering Thursday’s strong move lower. August expiration is next Friday and no actions are currently required or planned prior to expiration.
Now that volatility has increased we can look to add new trades this coming week. We have been slow in opening new trades due to such depressed volatility recently. As always, our patience has been rewarded with a nice volatility spike to take advantage of.
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We used SPY’s attempt at higher prices on Tuesday to sell out of the money calls. After Thursday’s strong move down the position is set up well for expiration next Friday. No action is required or planned for the position at this point prior to expiration.
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