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Monday, August 23, 2021 4:09:36 PM
SPY Options Suggest Little Maneuverability in this Market
By: Jordan Roy-Byrne | August 23, 2021
Options players continue to tightly hedge against a stock market crash. Simply put, if SPY is trading at 440, then put buyers are lining up at 439. If the market goes to 439, then the put buyers line up at 438 and so on. This is in contrast to when the market is in a bullish trend, where option traders tend to give SPY more room to maneuver. In other words, the closer the put buyers are to the current trading price, the higher the odds of rising volatility, as put buying by traders causes dealers to sell puts and then hedge their bets by selling stocks.
In essence, this becomes a market in which every down tick brings on more bets that the market will fall and sets up a downward bias to the trend.
So what that means is that, if the market turns aggressively lower, the selling will accelerate as the put buying increases. And because the bets are so tightly geared to the next low price in the option chain, you can see that the downward spiral can rapidly accelerate.
Market Breadth: Dead Cat Bounce or True Reversal?
The New York Stock Exchange Advance Decline line (NYAD), the most accurate indicator of the stock market's trend since 2016, took a beating last week, reversing a long term uptrend and turning into what, for now, is a short-term downtrend. That said, this could be yet another rapid short-term correction which will be used by algos to buy the dip.
Still, unless things reverse fairly soon, (NYAD) has given a sell signal, as it has fallen below its 50-day moving average and below the 50 area on its RSI simultaneously. That is a Duarte 50-50 sell signal.
As a result, as noted above, until this technical development is remedied, the odds of a lasting rally in stocks will be limited and caution is warranted.
Nevertheless, the Nasdaq 100 index (NDX) bounced back fairly stoutly on 8/20/21, which means that it is possible that the correction has already run its course barring a nasty surprise.
The S&P 500 (SPX) also bounced back fairly well. Interestingly the Accumulation Distribution (ADI) for both NDX and SPX is suggesting that money is moving into the indexes.
Joe Duarte
Read Full Story »»»
DiscoverGold
By: Jordan Roy-Byrne | August 23, 2021
Options players continue to tightly hedge against a stock market crash. Simply put, if SPY is trading at 440, then put buyers are lining up at 439. If the market goes to 439, then the put buyers line up at 438 and so on. This is in contrast to when the market is in a bullish trend, where option traders tend to give SPY more room to maneuver. In other words, the closer the put buyers are to the current trading price, the higher the odds of rising volatility, as put buying by traders causes dealers to sell puts and then hedge their bets by selling stocks.
In essence, this becomes a market in which every down tick brings on more bets that the market will fall and sets up a downward bias to the trend.
So what that means is that, if the market turns aggressively lower, the selling will accelerate as the put buying increases. And because the bets are so tightly geared to the next low price in the option chain, you can see that the downward spiral can rapidly accelerate.
Market Breadth: Dead Cat Bounce or True Reversal?
The New York Stock Exchange Advance Decline line (NYAD), the most accurate indicator of the stock market's trend since 2016, took a beating last week, reversing a long term uptrend and turning into what, for now, is a short-term downtrend. That said, this could be yet another rapid short-term correction which will be used by algos to buy the dip.
Still, unless things reverse fairly soon, (NYAD) has given a sell signal, as it has fallen below its 50-day moving average and below the 50 area on its RSI simultaneously. That is a Duarte 50-50 sell signal.
As a result, as noted above, until this technical development is remedied, the odds of a lasting rally in stocks will be limited and caution is warranted.
Nevertheless, the Nasdaq 100 index (NDX) bounced back fairly stoutly on 8/20/21, which means that it is possible that the correction has already run its course barring a nasty surprise.
The S&P 500 (SPX) also bounced back fairly well. Interestingly the Accumulation Distribution (ADI) for both NDX and SPX is suggesting that money is moving into the indexes.
Joe Duarte
Read Full Story »»»
DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
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