After the best week in the S&P 500 since 1974, Ascent Wealth Partners managing director Todd Gordon explains whether this is the recovery investors have been hoping for.
“The big question that concerns everyone – both traders and investors – is this rebound that we are seeing is just a short rally in the bear market that will eventually fail, return to lows, potentially cause us crossing the lows? it’s a V-shaped bottom and we’re going back to the top and potentially the top with this unprecedented economic stimulus package that Congress and the Fed have put in place? “Gordon said on Thursday Trading Nation “of CNBC.
The S&P 500 hit a record 3,393 on February 19 and bottomed out at 2,191 on March 23. This marked a 35% drop. Since then, it has rebounded by about 27%. According to Fibonacci’s retracement, this means that he has returned halfway to his peaks, says Gordon.
“We have reached the 50% price retracement at 2796,” he said. “That 61% which is another key level is at 2939. So, overall, it’s your area of interest where a possible failure, if it’s a bear market rally, could happen produce.”
Gordon says he has become more optimistic about the recovery of stocks and has allocated stocks to the market. However, he puts it at 50-50 as the markets hit new highs or retest lows – based on technical analysis, perhaps again to 2016 lows below 1900 on the S&P 500. In the In either case, he sees a way to protect himself from inconvenience by using options.
“The trade I want to look at is moving to July options [on the SPY S&P ETF], 100 days, buy the 225 strike put, sell the 200 strike put, it’s a spread of $ 25 for which you will pay $ 3.16. That means this spread costs you $ 316 for a batch of 225 call options and 200 put options, “he said.” Buying 225, selling 200 costs you $ 316, the maximum potential profit is $ 2,184 “.
He added that if the markets test the recent lows again before rising, the spread will increase above $ 3.16.
“If you start to fall, the market somehow holds the lowest, you see signs of life, you can certainly withdraw the trade and trade it as a stock. This gap is traded all day long, so you” n is not fixed in this thing until expiration, “he added.