With the markets down about 0.25% so far this week, they have a chance to finally end their weekly losing streak. All the s&p500 needs is a gain of 4 points to accomplish the feat. Though it may not seem like a big deal, breaking this weekly losing streak is the first step in starting a new uptrend. Likely having a say in the matter will be how traders react to two key economic reports, the Reuters/University of Michigan consumer confidence index for June, as well as the Conference Board’s leading economic indicators for May.
With the s&p500 only 1.3% away from key support at 1,250 we think the current environment is a good one to get bullish in, strictly for the immediate short term. We know, we know, we’ve been bearish for weeks, and if we had to choose, we’d still say that SPX trades below 1,250 before all is said and done. However, the best time to get bullish is when everyone and their mama’s mama is bearish, and that’s the exact type of situation we have here. The best part about it is is that we can get bullish just above a key support level, so we know where our risk is.
One of the ways to play a potential bounce is by buying SPY calls that expire next week. Specifically, we like the 130 call strike expiring next week. Should SPY start to bounce tomorrow, we could see the premium on the 130 calls trade higher, even more so if the bounce were to continue into early next week. Should this bounce fizzle out, we’re confident we could escape with minimal losses on a breakdown below Thursday’s lows. This is the type of trade we think offers the rare combination of potentially high reward with low risk (or at least one that is clearly defined by a nearby support level). Also, should this trade not work in our favor, we still have our VIX calls which would likely perform well should a bullish trade like this one not pan out.
Stocks to watch are POTG, RYUN, PAET, FTWR, APRJ, AECS, TARM, ASPZ, AUGT, CSOC, MSOA, OXIS, P, RIMM, RENN, DANG, SINA, BIDU, GOOG, AAPL, & ICLK.
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