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S&P Stock Market FOMO Rally

Stock-Markets / Stock Market 2023 Feb 18, 2023 - 10:39 PM GMT

By: Nadeem_Walayat


Whilst the Dow has raged higher off its October low unfortunately our portfolios are far more in tune with the S&P which has under performed the Dow to significant degree. However the good news is that the S&P tends to outperform the Dow during bull markets so will catchup to and pass the Dow during 2023.

The S&P soared through 3900 running the stops sucking the S&P higher to 3953 as I flagged it would well ahead of the break higher in the comments section of the last posted article. So do check the comments section as I continue to provide patrons with my short-term view on a near daily basis as well as doing my utmost to answer patron queries. Also note, the Patreon app does not always show all of the charts so it is best to access the Patreon via a browser either from your phone, tablet or desktop PC rather than the from the ap.

The current state of the S&P as of 6pm UK time following the retracement of the whole rally back to below 3900 has the S&P perched precisely at 3900, this suggests to me that vested interests in the run up to options expiration seek the S&P to expire at 3900 so as to maximise profits on expiring options, that is there game plan.

Big Image -

This suggests any rally to above 4000 'should' prove short lived in the countdown to options expiration on the 20th of January. Whilst at the same time 3900 also acts as floor of sorts. Technically the S&P is primed for a bull run that at least targets 4000, for instance more often reliable than not swings analysis suggests the S&P could run to above 4050, which if it happened I would guard against over exuberance in getting carried away with the likes of 4300 as some where when the S&P blasted through 4100 early December as the window for this rally off the October lows is ending.

So whilst I still expect 4000 to be achieved, everything thus far suggests that the forecast decline set to commence around the middle of January will materialise thus I will see the likes of 4050 as a bonus for further trimming. And as my Dow analysis suggests it is possible we blast off into space, but that is NOT my base case which remains as per my October 5th concluding trend forecast.

So my game plan is to continue to trim during this rally, to exit my remaining March Call options preferably with the S&P trading above 4000 whist at the same time starting to accumulate S&P Put options most likely for June expiry. And should the S&P clear 4000 then many of the stocks will fall into shorting price zones which means I will open small covered short positions on a select handful of stocks such as Tesla, Amazon, Apple, Microsoft, Roblox etc, where should the stocks rally then I will trim to a greater extent than the size of the short positions thus resulting a net profit against the shorts, whilst also generating cash for reinvestment at lower levels if the stocks suffer deep draw downs.

So small short positions with wide stops of typically 15% that are covered by investments (long positions) should the Dow rip your face off rally materialise, thus I will end up making far greater profit on the longs then lost on the shorts. I view stock shorts more as trying to earn income during a temporary draw down, I.e. if Apple fell from $130 to $110 then exit the Apple shorts at a profit and use the funds to buy more Apple stock at $110.

Well that’s the plan, remains to be seen if it plays out as I expect it to do or not,

So in summary my base case remains in expectations for a significant Q1 correction to kick in off of S&P 4000 Mid Jan 2023, so any rally to beyond 4000 should prove short lived, probably similar to the 13th December spike high reversal.So if you are looking to trim and failed to do so during the two preceding spikes above 4000 then this is likely your third and final chance to do so.

This article is an excerpt from Stock Market Gasping to Reach 4000 Ahead of Earnings Season, Dow New All Time High 2023? that was first made available to patrons who support my work.So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $5 per month.

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Your trim FOMO rally buy the DIP analyst.

By Nadeem Walayat

Copyright © 2005-2023 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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