The broader market has been on a tear to start the year, with seemingly everything gapping up and rallying everyday. Looking ahead, the market should continue to rally as long as the Q1 earning season is strong. However, I would not be surprised to see a few pauses along the way.
As the new year approaches us, it is time to start looking ahead to the Q1 earning season. One of my favorite strategies is to buy premium (usually straddles/strangles) into a particular earning report in anticipation of an implied volatility rise and then sell the options right before the report. I typically look to initiate this strategy around 1 week before the respective stock reports its earnings.
For the first time in months, the S&P 500 had a down day of more than 1%, and in doing so, broke through multiple support levels. Technology was one of the biggest losers today, with the Nasdaq down over 2%. The VIX is now trading at 16, which is the highest level on the year. When there is a ton of complacency in the market, all it takes is one negative headline to spook investors. This sell-off is healthy for the market and in fact will probably help facilitate gains later in the year. The S&P 500 had lost all its momentum in the last couple of weeks and this washout could help bring in some buyers.
It has been awhile since the broader market saw a meaningful downside move. Around mid-day today, the Nasdaq, represented by the QQQ, started to fall, led by a sharp decline by ‘FANG’ stocks and other high-fliers like Nvidia (NVDA). While a pullback is to be expected given the run, what came as a surprise, was the free fall that happened mid-day. The Nasdaq plunged over 2% is 1 hour with many of these ‘FANG’ stocks falling more than that in that same hour.