Stocks just keep chugging along, but at some point, enough is enough…
After falling a cliff in February and March due to fears surrounding the coronavirus, the S&P 500 (or SPY in this case) has had an extremely impressive recovery.
I fully expected stocks to bounce from oversold conditions, but I did not expect them to come this far, this fast.
As it stands right now, stocks are only down about 12% from their all time highs.
They initially dropped by roughly 40% and have since rallied back almost 30% from the lows in a matter of weeks.
All the while, the global economy has basically been at a stand still.
I’m not sure about you, but this all feels like a little “too far, too fast” to me.
Especially when we saw today that over 30 million people have now filed for unemployment in the last 6 weeks…
So Doc, what’s the play?
I’m not sure about you, but I’m thinking of shorting SPY.
It’s an ETF that tracks the S&P 500.
You could buy several month out puts or just try shorting the shares outright…
I’m looking for a small move down at the minimum with the hope of a drop all the way down to a rather large gap that hasn’t filled yet, roughly 12% lower than current levels…
I’m looking for this move to play out over the coming weeks and months.
There is no guarantee that the market will roll over, and if more good news on a treatment for the coronavirus comes out, stocks may just keep chugging higher.
One thing I have learned though in my years of trading is that when things start feeling good again, it’s usually about the time things are about ready to start heading back down.
And I’m not sure about you, but things do seem to be starting to feel good again…
Keep in mind that this is just a short term trade for me. Longer term I am wildly bullish on stocks (and bitcoin) due to central bank money printing and I will be a buyer of stocks when/if we get the dip I am trying to play to the downside here.
I am already holding decent positions on the long side and this is somewhat of a hedge as well in case there is a pullback, like it looks to me there is a decent chance there will be.
And as always, remember this isn’t financial advice, but rather the thoughts of a random due on the internet.
Stay informed my friends.