Lately the markets have been going nowhere–exactly the scnenario we like for profitable spread trades.
This past week we bagged an eight-day 18% profit on our SPX call spread, That was nice but we also had to close out of our PCLN spread at a loss as the stock got volatile right before expiration.
Now the market looks to be treading water–but it could also break sharply one way or the other. To find where the safest profits are this week let's take a good look at…
The Markets and How They Affect Us
The market has been in a general downtrend since the beginning of March…
As you can see the SPX has been tracing a series of lower highs and lower lows–that's bearish in anybody's book. And even though earnings season usually lights a fire under the markets there are some warning signs.
The yield on the ten-year treasury has declined to 2.35%, down from 2.61% in the middle of March. The "Trump Bump" appears to be fading as his first 100 days in office expire on Saturday. Treasury yields are falling because investors are buying treasuries instead of stocks–looking for safety rather than the urge to chance any addition upside.
This big of a drop in treasury yields is significant. Kensho produced some research on a move of this magnitude in a 30-day period. Apparently it has happened 35 times since 2007. When the yield declines 30 bps in 30 days, the S&P declines an average of 2.31% in the weeks that follow–and that's with 78% reliability. That's a stat worth paying attention to.
For the first quarter of 2017 just ended Friday the Dow gained 4.5%, Nasdaq Composite +9.8%, Nasdaq 100 +11.8%, S&P-500 +5.5% and Russell 2000 +2.3%. It was definitely a big cap tech quarter with more than twice the gains of the Dow and S&P versus the Russell. It was the best quarter for the market since Q4-2015.
And that's great–but what goes up oftentimes retraces–and that's what we could see over the next week or so.
After setting a new closing high on March 1st, the Dow actually lost -149 points for the month of March–which makes for the first monthly loss since October. We've definitely seen a trend change and the SPX chart above does nothing to alter that–the question is…
How do we make money on it?
For our aggressive trade we've got a put spread on the strongest company in a very robust sector. We'll be selling well below support for a nine-day 28% profit.
And for our Roth trade we're selling two out-of-the-money call spreads for a potential 3-day 14% profit and a 9-day 20% gain.
We've got three trades looking good for this market–so let's get started…
Click here to gain access to today's picks.
Keep up the good work,
Peter