Hi Everyone
By now you know my mantra:
“Trade What You See”
And still what we can see is a rising market with the OVI largely positive. This generally points to a continued bullish market.
However, there are clouds on the horizon and while I continue to advocate the “Trade What You See” mantra, I want you to be aware of the warning signs now.
What you can see in the chart above is that the OVI is bumbling along just in positive territory – though not overwhelmingly so – and that the Implied Volatility of the OPTIONS is super low. This suggests bullishness.
However, it’s at times of super low Implied Volatility that the markets seem to have a habit of catching a cold. Now, so far there’s no suggestion of this happening apart from one tiny thing that I’m seeing. And that’s the price bars themselves are looking wider than normal. This, combined with the fact that the OVI is only marginally positive, makes me wary of a reversal.
Of course we continue to trade what we see, but we have to be vigilant and on our toes. There’s an old expression in the markets: “Sell in May and Go Away”. Last May that didn’t hold as the markets continued to recover, but if you look down the years, it’s not been a bad motto to have.
We’re still in Earnings Season and apart from the Goldman Sachs news it’s been very solid for stocks, with some of the really big boys doing very well, like AAPL.
GS is being investigated by the SEC for fraud relating to its securitized mortgage products. I very much doubt GS will be found to have done anything much wrong here. After all it exists to allow big institutions to take speculative positions in the markets and that’s pretty much all it did here, allowing its clients to bet for and against the US housing market. That said, there’s still a ton of uncertainty in the stock, which is why it’s bursting through its own Bear Flag as we speak.
So, what do I think is going to happen? Well, GS and the financial sector is having a rough time right now. Financial stocks often lead the markets. Inflation fears are very real, and the recovery is far from being a dead cert.
Any long positions should be carefully managed with tight stops. A bullish market climbs a wall of worry … that’s what we’ve been doing. But for how long and how high?
Trade What You See … but bear in mind we’re going through some pretty sharp bends in the road right now, so take your foot off the accelerator and be aware of trouble ahead.
All the best
Guy
Get the OVI charts for all optionable stocks, plus coaching and much more at: http://ptc.flagtrader.com
