Fear Makes A Market

The end of quarter window dressing that tends to occur at this time of year along with the front-running of the 1st of the month seasonality may trump everything else this coming week. One thing is for sure, uncertainty is fuel for both bulls and bears here so it’s game on. My gut says that we trend higher early next week. Is there uncertainty in the market? Yes! Does that matter? No! Uncertainty is always there, it just changes form. Fear is what makes the market a market, especially for me as a premium seller.

The beauty of selling premium is that I don’t have to be right about direction. I do, however, have to be right about the potentiality of movement in a given period. I’m not screwed if I’m wrong about the market moving up early this coming week. I’m short July put spreads at various strikes under 1200 so I’m not saying that the $SPX can’t or won’t move lower.  The charts below show all kinds of potential for a move lower. What I am saying is that I doubt it will break lower by another 5%. Could I be wrong? Absolutely! That’s why I have various strikes in the form of spreads (defined risk) and only 40% of my portfolio at risk.

Check the price action in the RUT which is actually looking relatively healthy. Small caps looking healthy at an inflection point in the broader market says a lot about the risk appetite, no? The US Dollar had a nice week as it bounced off the 50 SMA on continued fear about what’s going to happen in the EU. That fear is getting old as it seems everyone knows that damage is going to be controlled/contained. We become immune to such fear, complacent, then our attention is turned to the next event that may or may not occur.

I’m good at predicting price ranges calculating probabilities and managing risk accordingly. Having those abilities is how I make my living and why people entrust their hard earned capital with me.  I prepare so that I can trade proactively versus reactively. I wouldn’t have it any other way.