The market has had a rough time over the last few trading sessions. Worries about the new Omicron COVID-19 variant sent the S&P 500 down more than 2% on Friday and 1.9% on Monday. Although the major indexes had lost less than 3% by Tuesday, compared to the all-time highest close on Nov. 18, it has been unnerving to deal with another round of volatility like this.
Since the financial crisis, the S&P 500 has drawn down more than 2% in a single day 107 times. However, the market is higher within 30 calendar days (20 trading days) 75.7% of the time when compared to the pre-crash price. That means there is a very good chance the S&P 500 will be trading above $4,675 by December 30.
In a situation like this, we usually get questions about the unique factor that is driving the market lower. In this case, that is the Omicron variant, but there is always something that represents a big unknown that triggers large one- or two-day drops.
What would make us much more concerned about the short-term prospects for the market is a change in fundamental growth numbers. So far, expectations for earnings in the fourth quarter remain stable and positive. However, if travel restrictions and lockdowns in Europe start to become more severe, we may have to adjust our expectations.
For now, we recommend looking at this week’s volatility as a dip-buying opportunity. The tech sector may offer some interesting new trades in the short term as long-term interest rates have been dropping.
Expecting Some Stability Soon
Mercifully, traders have had a few days to regroup and process the information over the holiday weekend, and calmer heads are prevailing. We expect to see the markets stabilize this week and move forward.
However, all this volatility gave us a great opportunity to take some profits off the table on Monday:
- 0.43% on The Walt Disney Co. (NYSE:DIS) in nine trading days.
- 6.97% on Pfizer Inc. (NYSE:PFE) in just four trading days.
Then on Wednesday, we zeroed in on an oil play to take advantage of the wild ride crude has taken this week. But because OPEC met Wednesday and Thursday, we would be shocked if it doesn’t take some action or at least release a statement that will boost oil prices.
To learn more about how to get access to this play, click here.
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Editors, Trading Opportunities