As we head into the 3-day holiday weekend, we’re continually getting the sense that this year’s prior message (i.e., sell rallies) has not really changed. The SPX has given back over half of what its gain had been from the 2022 low, and I’m still in the camp that Friday closes beneath 3617 (the more of them the worse) likely leads to another 10%+ decline in the market.

I don’t want to completely write off that the 3673/3617 zone has thus held – and that the latter was my published downside target for this move a few months ago. But barring a sudden change of events – either by the Fed (doubtful), interest rates moving substantially lower (very doubtful; or a peace agreement in the Russia/Ukraine war (very, very doubtful) – I’m just not convinced that the market has yet priced in all of the bad news that can still come.

A while ago, I wrote that downward earnings revisions were not yet priced into the market, and that we’d likely still see overall selling pressure. That selling is still evident, except, now everyone else is talking about the downward earnings revisions. That’s no longer the story I want to go with, as I like being ahead of the curve and not being with the masses.

I’ve looked back over the entire 100+ year history I have for the SPX, and it has never closed out a year on the low of the year (the way we’ve often seen the highs of the year come the last week of the year). Maybe this year is the first on record? Certainly, no one is talking about that, as most are looking for a Q3 or Q4 rally. Heck: I don’t’ know. But maybe this whole year just keeps drifting lower and never gets a lasting recovery that actually holds. I’m just saying….

With the holiday weekend upon us, I am not going to put a new position on today. I expect trading to be thin, and also with it being both the first of the month (big employment report out) plus funds rebalancing for new quarter and half, I am very content to be in “Summer Friday mode” and just let things play out.

– Rick Bensignor
Chief Market Strategist

Bearish Opening Trade Signal

View XLC Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 5 Contracts Aug 5, 2022 $55/$61 Call Verticals @ $1.80 Credit.

Total Risk: This trade has a max risk of $2,100 (5 Contracts x $420 per contract).

Trend Continuation Signal: This is a Bearish trade on an ETF that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 3/10

OptionsPlay Score: 98

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

One thing I notice that is very much contributing to some of the large and seemingly unexplained intraday moves in the equity markets is that liquidity has dramatically dropped from when stocks were in bull mode (like they were for all of 2021).  It’s easiest to see this in the S&P futures, where what were “standard” size bids and offers were often multiple hundreds of contracts at every single tick. Nowadays, we’re seeing dozens (or even smaller amounts) as the norm, and it accounts for why we constantly see 5-minute 20-point moves. There’s just nothing there to absorb any real size order.

I’m fairly sure that the bulk of the trading done is now even more so by computer vs. computer, and that much of the public and institutional community has greatly diminished their daily participation – more so managing overall portfolio construction and far less so trading for short-term moves.  And virtually everyone I talk to is telling me the same thing: “You can’t beat this game right now, so I’m not even gonna try”. I hear something like that a few times a day.

Which leads me to today’s Daily Play – an idea that’s more so about playing the overall downward trend of this security, and less so about trying to guess the day-to-day movement. Let’s look at the chart of the Communication Services SPDR ETF (XLC). Its biggest components are META and GOOG/GOOGL, and combined they comprise 40% of this ETF. We see that on its entire move down from all-time highs some 14 months ago, it has yet to even make a weekly Setup -9 count, let alone a more terminal -13 count. I’m apt to think it won’t make its true bottom without at least doing the former, and with it already trading under its 62% Fibonacci retracement, it might finally do one over the next five weeks.

XLC – Weekly

As such, let’s look to sell an August 5th $55/$61 call spread, which closed yesterday at $1.825 mid. (I’m using the $61 strike because that is the high of Setup bar -1, which in theory would be where the TDST Line resistance would be at if this completes the current downward count in early August.) We’d be collecting about 30% of the spread differential, and the spread expires in 37 days, in line with the potential for another 5 weeks of mostly negative price action to reach the Setup -9.

Yesterday was the cold, slap-in-the-face day that we know can come anytime.  And it stung.  The early strength seen in the lessening of Chinese Covid restrictions quickly disappeared into the ongoing story of rising oil prices, recession, and inflationary pressures – yada yada yada. The SPX got whacked for 2% on the day, closing 124 points off its intraday high. That doubly hurt, for not only did yesterday’s new BIIB bullish call spread collapse after we put in on, but copper also came off after an opening gap higher to then close down on the day (after we covered half early in the session).

For today, let’s look at the July 1 CLF $18/$21 call spread we put on two weeks back. We never got positive traction on this trade, and with it expiring on Friday I have the choice to simply exit it; roll it down to lower strikes, or let it expire worthless. Frankly, I’m apt for the latter, simply because it’s unclear to me if this is going to hold against support that it’s on right now; trade lower to where its weekly Lagging Line (in bold blue) hits its cloud bottom ($14.85 to $14.96 over the next few weeks) and then see if that holds; or just even heads lower than that. (We’re down 99% on the trade so selling it out now doesn’t pay.)

CLF – Weekly

Trading will likely thin out as the week goes on and we head into the 3-day holiday weekend.  It’s not too late to still cull your investment holdings of non-performing names to raise cash for better buying opportunities likely to come later this summer and fall.

Bullish Opening Trade Signal

View BIIB Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 6 Contracts July 15, 2022 $215/$225 Call Verticals @ $3.30 Debit.

Total Risk: This trade has a max risk of $1,980 (6 Contracts x $330 per contract).

Trend Continuation Signal: This is a Bullish trade on a stock that is experiencing a bullish trend. 

1M/6M Trends: Bullish/Neutral

Technical Score: 8/10

OptionsPlay Score: 109

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Health Care has been one of my pure Over Weights this year in my In The Know Trader’s monthly 7:11 report. In fact, I put it in the portfolio on Dec. 1st last year after having not been in the sector since its inception in August 2020. This year, it is already outpacing the SPY by 10.3%.

Within the Health Care sector is biotechnology, and one of that group’s best-known names is Biogen (BIIB). And BIIB did something yesterday it has not done even once since the June 2021 peak in price: its daily cloud’s Lagging Line broke above the top of its cloud. That is deemed a bullish breakout in cloud chart terms, and as such, we will look to buy a short-dated July 15th $215/$225 call spread. It closed yesterday at $3.25 mid, meaning that we’ll be laying out about 33% of the spread differential.

BIIB – Daily

Secondly, to best manage risk, I want to revisit a very recent Daily Play short recommendation in COPX. We are short a July 15th $31/$35 call spread from last week when copper broke down to new 17-month lows while also having its Lagging Line break its cloud. However, by last Friday’s close, copper rallied enough to just keep the Lagging Line in its cloud, and thus, this chart really didn’t break down. As such, I’d rather cover half now than run the risk that it doesn’t break at all. If it does, we still have half on. But if not, we’ve reduced the chances for a full loss.

COPX – Weekly

Partial Closing Trade

• COPX – 88.17% Loss: Buy to Close 3 Contracts July 15, 2022 $31/$35 Call Verticals @ $1.75 Debit. DailyPlay Portfolio: By Closing 3 of the 6 Contracts, we will be paying $525.

Bullish Opening Trade Signal

View UAL Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Sell to Open 6 Contracts Aug 19, 2022 $38/$47 Call Verticals @ $3.03 Debit.

Total Risk: This trade has a max risk of $1,818 (6 Contracts x $303 per contract).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 5/10

OptionsPlay Score: 102

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Our bullish trade idea today is United Airlines (UAL). Airline stocks have decline across the board due to recession fears. Looking at the JETS airline ETF, price has bounced from channel support indicating further upside ahead. Additionally, UAL is outperforming JETS on a relative basis and has bounced higher from support. From a fundamental perspective, airline bookings continue to grow despite the recent pullback in price. This provides a good risk/reward bullish opportunity with the next resistance level at $47 acting as a potential target. 

Bearish Opening Trade Signal

View COPX Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 6 Contracts July 15, 2022 $31/$35 Call Verticals @ $0.93 Credit.

Total Risk: This trade has a max risk of $1,842 (6 Contracts x $307 per contract).

Trend Continuation Signal: This is a Bearish trade on a stock that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 4/10

OptionsPlay Score: 88

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Copper has been under pressure since early April, but yesterday it cracked beneath prior important lows to put in what should be a fairly substantial top, with over a year worth of buyers now trapped. As such, we will look to sell a Global X Copper Miners ETF (COPX) July 15th $31/$35 call spread. (Last night this closed at $0.925 mid.) This has 22 days to expiration, and we’re taking in 23% of the spread. It’s a bit less than I’d typically like to collect, but with so many likely sellers coming on any rally, I don’t think it can move up much.

COPX – Daily

Bullish Opening Trade Signal

View GLD Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 10 Contracts July 15, 2022 $171/$176 Call Verticals @ $1.85 Debit.

Total Risk: This trade has a max risk of $1,850 (10 Contracts x $185 per contract).

Trend Continuation Signal: This is a Bullish trade on a stock that is experiencing a bullish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 9/10

OptionsPlay Score: 108

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Gold has been hampered all year by a bullish dollar, and if it weren’t for the greenback’s strength, I think there were good chances that it would be up over $2000/oz. – especially with what has happened to the equity market.

The two-month bullion decline brought the SPDR Gold Trust ETF (GLD) back down to a 2022 weekly uptrend line – a line that now has four additional touches to it on top of the two you need to first create the line. It has also played with but stayed above the bearish Propulsion Momentum level of $170.28 for three weeks running. As such – along with my feeling that the dollar may have run its course – we will look to buy a GLD July 15 $171/$176 call spread for $1.85 (based upon Wednesday’s closing mid prices).

GLD – Weekly

Closing Trade

• ARKK: 33.33% Gain: Buy to Close 10 Contracts June 24, 2022 $39/$37 Put Verticals @ $0.88 Debit. DailyPlay Portfolio: By closing the remaining 10 of the 20 Contracts, we will be paying $880. We took partial profits for this trade on June 3 at a $0.46 Debit. Therefore, the average gain on this trade was 49.24% and the average cost basis to exit this trade is $0.67 Debit.

Partial Closing Trade

V: 179% Gain: Sell to Close1 Contract July 15, 2022 $210/$190 Put Verticals @ $13.42 Credit. DailyPlay Portfolio: By closing 1 of the 2 Contracts, we will be receiving $1,342.

Bullish Opening Trade Signal

View AAPL Trade

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish

Details: Sell to Open 3 Contracts July 29, 2022 $130/$120 Put Verticals @ $3.25 Credit.

Total Risk: This trade has a max risk of $2,025 (3 Contracts x $675 per contract).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 4/10

OptionsPlay Score: 85

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Match Group Inc. (MTCH) is currently in a clear bearish trend and the price is currently trading at the top Our bullish trade idea today is Apple Inc (AAPL). AAPL has declined to the $130 area forming a new lower low, however, momentum indicators show positive divergence which indicates a potential reversal higher at oversold levels. From a fundamental perspective, AAPL’s shift to a more service focused model will provide more consistent revenues. 

Closing Trades

• CVS: 88.41% Gain: Sell to Close 3 June 17, 2022 $95/$85 Put Verticals @5.20 Credit. DailyPlay Portfolio: By Closing the remaining 3 of the 7 Contracts, we will be receiving $1,560. We took partial profits for this trade on June 14 at a $4.14 Credit. Therefore, the average gain on this trade was 124.25% and the average cost basis to exit this trade is $4.59 Credit.
• MTCH: 34.33% Gain: Buy to Close1 July 22, 2022 $77/$88 Call Verticals @ $2.64 Debit. DailyPlay Portfolio: By closing 1 of the 3 Contracts, we will be paying $264.

Investment Rationale

Make sure you are out of the long CVS June 17 $95/$85 put spread as it expires today.

Today is the quarterly quadruple witching day, meaning that tens of thousands of options and futures contracts expire today. These days usually have significant intraday volatility, and with the markets also closed this coming Monday, many will be squaring up positions before the 3-day weekend.

Yesterday the SPX closed a few points beneath the weekly Propulsion Exhaustion level at 3673, and now the market is but 50 points above the 3617 target I put out two months ago. To me, that means I’m apt to be taking partial profits on short positions from here down to that 3617 target. In the bigger picture, I can’t tell you that I think the big decline is over, but in the near-term, we certainly may be closer to a trading low.

One key thing to continue watching is the weekly SPX’s Lagging Line vs. its cloud bottom. It is holding for now, and it certainly could lead to some bottom-fishers coming in.

SPX – Weekly

We’re in the midst of a negative earnings revision cycle, and the market price is still too high relative to the implications of those revisions. Therefore, I’d still be looking to sell rallies when and if they come, but at levels that have a reason to do so. (Some of the wickedest up moves come in the midst of bear market rallies.) For now, I’d be watching the Conversion Line (currently 4076) as the first real resistance and what capped the market just two weeks ago.

Lastly, we are short three July 22 MTCH $77/$88 call spreads. With 5 of the last 7 weeks having the same low near $73, let’s buy back one of those three spreads today to lock in some profit against support.

MTCH – Weekly