Wednesday’s one-day reversal, in which the market was up significantly in the morning and down sharply at the close, casts a negative shadow for at least the next few days. Looking out a bit further, the next month is the most dangerous time in the market every year. We’re right in the thick of it and, because it is not a good time seasonally, we’ll continue to be very defensive.
Everybody is trying to project why this is happening, and wants it to be as easy as laying blame on China or some other catalyst, but for me it’s as simple as just looking at the technicals and watching where the money is moving. I don’t really care about all the other auxiliary things that are causing the situation. I’m just trying to track what the money’s doing.
My bearish bias keeps me from getting excited about any stocks at the moment, and the S&P 500’s chart shows a bearish technical picture. That said, the 2,000 level on the S&P 500 that I mentioned last week will stay in focus as a potential change agent. A decisive break above 2,000 would cause me to change my tune.
Overall, my indicators are neutral to slightly bearish—but, as far as I’m concerned, I remain definitively bearish. Bottom line: buy puts on any rally, and I think this market will move lower over the next few weeks. Here’s one such bearish trade to get you started.
Buy to open the Bank of America Corp (BAC) Nov 15 Puts (BAC151120P00015000) at $0.55 or lower. After entry, take profits if the stock price hits $14.40 or the option price hits $1.20. Exit if Bank of America stock closes above $16.60.
If after three days you still have not gotten the position filled, cancel the order and watch for new recommendations, as the profit probabilities may no longer be valid.
Additionally, if the option or its underlying stock does not hit its target, or if the stock does not close at or below its sell signal price within three weeks of entry, close the position. I do not recommend holding an option play for more than three weeks.
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