With the Italy referendum over the weekend, the market gapped down while metals gapped up. Then within a few hours they both reversed.
The 2178 region is a support region as is 2184 — so it appears it bounced strongly from those levels. My guess is we should hold above 2190, but there remains the possibility that we have a c-wave down first. My preferred count is the one shown below.
The strongest indices have been Russell and Dow. I came across an article on CNBC that explains why the Dow went up so much – and most of its gain is actually attributable to just 3 stocks: Goldman Sachs (GS), United Health (UNH), and Caterpillar (CAT).
The reason is because the Dow Jones, unlike the S&P500 or Russell, is price-weighted. That means stocks that have a higher dollar price have a greater impact on the Dow Jones index. This is different from the S&P500 and Russell, which are market-cap weighted. So yea, since these three stocks are priced high.
Now, of course, these stocks could simply do a stock split and they’ll have less influence on the index. But for now, as long as they leave their stock price numbers high without doubling the number of shares, for example, then their influence on the Dow Jones index will continue to be abnormally high, relative to the actual size of the company.
Last Friday, when implied volatility was still somewhat elevated after multiple negative days in all major indices, we put on a bull put spread for the QQQ’s (Nasdaq). If you look at implied volatility or a close proxy, the VIX (http://finviz.com/futures_charts.ashx?t=VX&p=h1), you can see implied volatility collapsed quite a bit today. It could possibly be the after effect of an Italian referendum . But whatever the case is, IV dropped. This morning, we exited our QQQ calls at a small loss – so effectively swapped out our long calls for a higher probability short put spread on the nasdaq index. So we were able to increase the probability of success for our trade, which is close to $1,200 in max profit if it works out by selling options when implied volatility was high, and also exiting a long call trade when there was a pop up in the nasdaq.
As of the lose, VIX is at 13.55 — so it dropped from over 15 to 13.55. Last Friday was an ideal time to put on iron condors or put spreads. I personally experimented with IWM/QQQ put spreads and also tried a small SPX Monday expiration iron condor – betting that SPX would stay between 2175 and 2205. We closed pretty much at 2205 – so that strike was close to break even, but I was able to collect max profit on the short 2175 strike – without taking directional risk. The downside with this strategy is it eats up a lot of margin, so your theoretical loss is quite high – in the event there’s a massive rally or massive drop. I will keep experimenting with these Monday expirations to see if are worth the risk.
As predicted in last week’s podcast episde: Ep18: Thxgiving Weekend, Nov: Trump Election Impact on Financial Markets – we pointed out the possibility that Gold/Silver MAY have bottomed at 8pm and 9pm, respectively on Thanksgiving night. So far, this was not the case for gold – as we made new lows today – however, for silver, that low during Thanksgiving dinner has held.
Below circles the potential low in silver at 16.24-ish on November 25 – this is a chart of the March Silver Futures contract. At the time, I believe the Dec Silver contracts touched 16.15
Since Gold struggled with 4th wave resistance at 1200 – it made new lows. So that means the Thanksgving low would be 3 — what follows should be a pink 4 (rather than a pink 5 as shown in the chart below).
Over the weekend, we had another geopolitical risk – with Italy in some kind of referendum – which helped to spike gold and silver up at the open Sunday night, but only temporarily. From there, we’ve so far seen 5 waves down and a reversal. It remains to be seen rather this microcount will hold.
Here’s a video on Buffett’s Investment Advice from this weekend
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