by bitkogan
As it stands, we’re seeing low volatility, and the market seems to be treading water. Despite many factors favoring a drop, we are where we are.
The S&P index appears to be slightly bearish – a subtle movement that could become more pronounced. If the S&P doesn’t maintain its 4080 level, we may see it descend further. The next significant support level is at 4050; if that breaks, we could be looking at 3900-3950. Should we reach that point, I plan to take substantial profits from short positions.
But what if we maintain the 4080 level? A myriad of factors could account for this, such as an initial reaction to an agreement on the national debt ceiling. In such a case, a short-term surge to 4200-4300 is plausible. Yes, a rally is possible, and we should be mindful of a massive short squeeze. Exercise caution with shorts.
You may wonder how this could happen given the apparent scarcity of funds in the U.S. Treasury. However, I’m confident a default will be avoided. An in-depth analysis of current U.S. budget revenues shows that income is sufficient to cover maturing bonds and debts, principal, and interest.
The issue of 25 million government employees, social program payments, and healthcare is another story. Some may face furloughs, others delayed payments. There will be significant noise, but this is manageable as long as it’s short-lived.
Turning back to the markets, the low trading volumes are concerning. Everyone seems to be waiting for something, which makes market predictions challenging. Hence, I advocate for prudence. The current situation reminds me of August 2015 when we saw a rapid 10% drop. I expect a similar fall in June, likely between the 1st and 10th, though this is a tentative prediction.
My options position in SPY fully lies within this logic. In case of a short squeeze for any reason, I would simply retain the premium I received earlier, since I anticipated such a turn of events.
However, if the markets go down in June, it’s even better. I’m long on 06/30 400 Puts, and short on 370 and 360 strikes. This strategy is set to weather a 10% decrease, with an additional buffer of 2-3% for safety.
As for gold, I’m also opting for caution. If prices drop significantly, I may consider JNUG, albeit without much enthusiasm.
Friends, risk control is crucial. Avoid going all-in, as markets are unpredictable. Exercise utmost caution. Keep a close eye on your portfolio balance. Resist impulsive or emotional decisions. The current low volatility and turnover can change overnight, potentially unleashing a market storm.
Here’s to successful investing.