After nearly 1.5 months of dull summer market action, we now enter September bored and expecting more of the same. At least that is what the option market is expecting. One thing we know about this market, it has a habit of doing exactly the opposite of what the majority is expecting. More boring trading action in September you say?...... I beg to differ.
They say never short a dull market. And for most of July and August, going long wasn't the answer either. However I think the last 1.5 months were a consolidation phase before the next big breakout for many names.
Here are a few things we know heading into the last four months of 2016.
- The FED is not going to raise rates anytime soon, perhaps not until the middle of 2017 at the earliest.
- The election is coming.
- The mission of Central Banks around the globe remains to augment asset prices through continuous unconventional measures in the hopes of stoking inflation. Something that they have failed to accomplish each of the last 7 years.... and counting.
- Continued negativity about markets, debt, the economy, growth, will keep easy Central Bank policy around for the foreseeable future - perhaps forever....
Which equates to a market that is more than likely headed higher from here. 1.5 months of sideways action has made options incredibly cheap for the likes of $NLFX and $GOOGL.
Historically each of these stocks have seen massive rallies out of weeks and/or months of consolidation.
I am in NFLX September $100 calls at $1.10 from late last week for a possible breakout to the upside:
and now we have GOOGL setting up after a few months of quiet trading action.
$GOOGL now is just $9 away from new record highs. If you go back to 2015, $GOOGL was stuck in a narrow range for many moons before embarking on a massive multi-week $150+ move to the upside.
I'm not sure that is what will happen here, but I do think we could see a nice rally back over $810 and to new record highs.
For $GOOGL, the stock has a habit of appreciating sharply in a multi-week fashion, before settling down in a tight consolidation.
That is what I am trading for.