My indicators are neutral this week, a slight downgrade from last week’s neutral-to-bullish readings, as the market remains range-bound. While I expect the trading range to be maintained in the short-term — and perhaps as long as October or November — there are a lot of factors that make me wary of the market’s strength.
As has been the case, China’s market swoon and the uncertainty in Europe are keeping a cloud over the indices, and earnings reports from large-cap companies in the U.S. are not as rosy as they were expected to be, which is a slightly negative sign. Also, the continued strength of the dollar is not helping the U.S. equity markets.
In my opinion, however, the real concern is the fact that the oil market is collapsing. Lower oil prices put a lot of pressure on small energy companies that are highly leveraged. If the oil situation continues to worsen, we’ll start to see a lot of bankruptcies in the smaller oil firms, and that negativity will likely bleed into the overall market. If that turns out to be the case, it could end up being the crack that sends this market into a downward spiral.
Not only is oil dropping, but all commodities are coming down as well. Gold in particular has broken its important support levels, which could be a move toward deflation — yet another negative for the market.
One index to watch very closely is the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), what I refer to as basically the junk bond index. Activist investor Carl Icahn and I both share the same concern that there’s not much liquidity in this asset class and, if that market breaks, it could drop down a long way.
It’s also important to note that the S&P 500 Volatility Index (VIX) has dropped to such low levels, even dipping below 12, that it signals the market does not fear anything. That’s not a good sign, and any black-swan event may catch institutional investors off guard — but not us. It’s prudent to hold a mix of puts and calls, and I continue to recommend adding insurance to your portfolio.
What I don’t want you to do is stand on the sidelines. There’s plenty of money to be made while the market decides its course, so don’t miss out on today’s new profit-making opportunity in Lockheed Martin Corporation (LMT).
Buy to open the LMT Sep 210 Calls (LMT150918C00210000) at $1.60 or lower. After entry, take profits if the stock price hits $208.50 or the option price hits $3.60. Exit if the stock price closes below $200. If the trade has neither hit the stop-loss nor the target within three weeks of entry, close the position. I recommend not holding an option play for more than three weeks.
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Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Power Options Weekly today and receive 2 weeks for the price of 1 for only $19.95.
