Todd Horwitz Chief Strategist BubbaTrading.com
Be Prepared not Surprised.
The New Year started out with a big bang or a thud depending how you want to look at it. Either way the markets got clobbered and are in danger of breaking down. The Nasdaq and Russell have already done so. Typical action in a market on the verge of reversing, the Dow and S+P are stronger than the others.
Market price action suggests that the change in direction has begun. There are many reasons to believe the bull market could be over, spiking inflation, political unrest, and higher interest rates. Not only are we seeing a 1.77% Ten Year, but the yield curve is inverting. A yield curve that inverts is typically bearish and means short term rates are higher than long term rates.
Call buyers remain in control but as we have written many times, call buyers don’t mean bullish. We never know what is on the other side of the trade, short stock and a long call equal a synthetic put. The options markets are nixed with Put buyers and Call sellers among the leaders however the VIX has not risen as much as you would think. This signals there are still option sellers out there.
The bears lead markets lower with IWM, COIN, BBBY, NVAX and NAKD while the bulls were buying AAPL, TSLA, SPY, GLD and BABA. This week will tell the real story, if markets remain under pressure, it could be a long year with heavy selling.
As traders and investors, we have one thing to remember, follow the trend of the market. Be patient disciplined and leave your emotions out. The most important thing to remember is money management and self-control.
Todd “Bubba” Horwitz
BubbaTrading.com