As equity markets press new all-time highs and the CBOE Volatility Index prints 52-week lows, this should be considered a bullish outlook by all accounts. However, if we look under the hood, the insides during this rally concern me and in my opinion, warrant buying some protection at these all-time highs. If we look at the RRG Sector Pivot Chart, we see that over the past five weeks, the gains in the S&P 500 have been led by utilities, energy and fundamentals. While the tech is starting to show a small uptick in strength this week, the overall market tone is clearly defensive. With materials and industries also spinning, we simply lack the confidence to call a strong bull market at recent all-time highs. Now, if we look at a chart of the S&P 500, we see that the new all-time highs were not confirmed by a new high in the relative strength index momentum indicator, suggesting that buyers are exhausted and may they lack the strength to continue higher. . Furthermore, volume has been increasing in bearish weeks and decreasing in bullish weeks, further evidence that this bull market lacks strength. The trade I see two possible ways this could happen: Either the offensive sectors like technology, discretionary, materials and industrials could start to lead again, or we could potentially see the S&P 500 itself start to roll. With the VIX trading around the 12 handle, my opinion is that it costs us very little to buy a hedge and will allow you to stay fully invested in the markets. This would allow for further positive participation if the attacking sectors were to come back to life by giving up a small percentage of your portfolio for the defense. And that would provide downside protection if the markets were to turn upside down. I will go out in July and buy the $530 SPDR S & P 500 ETF Trust (SPY) at $7.35, which is only 1.3% of SPY’s value to buy over 2 months of protection. I’m choosing a strike price that has a delta of 40, which translates to $0.40 in profits for every $1 that SPY falls. DISCLAIMER: (None) THE ABOVE CONTENT IS SUBJECT TO TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE ANY SECURITY OR OTHER FINANCIAL SECURITY. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISION, YOU SHOULD CONSIDER SEEKING THE ADVICE OF YOUR FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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