04 Feb The stock market is stuck in the same rut since November
Uncertainty reigns supreme in the economy creating a very choppy, range-bound trading environment that is creating concern for the fate of our current bull market. Let’s see what the charts are telling us. The current environment is due to expected persistent inflationary pressures from two main sources: strong growth via recent GDP readings and the new threat of a tariff-driven global trade war. These two main drivers of continued expected inflation are causing the Fed Funds futures markets to price in just one additional rate cut this year. As I type the S & P 500 is trading in the November 8 zone that immediately followed the presidential election spike. Since then markets have chopped back and forth in about a 5% range from S & P 6,129 to 5,774. If the S & P closes within that range this Friday, that will be three months in this wicked range. With the barrage of headlines crossing the tape from our new administration, combined with the chop-fest described above, that’s enough to make any investor’s head spin, including this author. I’ve had many conversations with our investors who accept our guidance that the longer-term secular, AI-driven tech bull market is still in place. But concerns that we may be wrong remain, and I completely get it. I’m of the belief that time in the market is better than timing the market. But that does not mean we can’t handle some of the uncertainties through proper sector, industry, and stock rotations and adjustments, as well as by applying cheaper insurance policies that are low cost, with a high payout to mitigate some of the concerns. At the end of this article I’ll lay out a possible insurance policy via an out of the money S & P 500 put option spread. But first, the technicals of the S & P 500: The weekly chart above shows a persistent uptrend contained within the black dotted parallel trend channels. The upper-end of the channel has offered resistance (ceiling) and we seem to be chopping sideways towards the mid-line that is highlighted at around 5,850. Could this be support? Possibly. I’m a bit more focused on a confluence of moving averages. The 50-week moving average also highlighted here comes in at 5,564. The last time we were below the 50-week was October 2023. Are we headed there again? No, I don’t think so. However…. If you turn to the daily chart you’ll notice the 200-day moving average is at 5,634, about 5% away from the 50-week moving average. The last time we were below the 200-day moving average was also October 2023 (not shown on the daily chart). As I said, I don’t believe that we’re headed down to this zone of support at 5,634 to 5,564, but in case I’m wrong and the market does take an unexpected turn, we can purchase some portfolio insurance in the S & P 500 or SPDR S & P 500 Trust options. In the S & P 500 June monthly options you could buy the 5,800 put and sell the 5,500 put for a total cost of $44.20. That is a max loss of $4,420. The maximum gain is the 300 point spread, subtracted from the $44.20 premium paid, or $255.80, which is a profit of $25,580 if the S & P closes below 5,500 by June 20th. That is potentially a 5-part reward to 1-part risk insurance policy. As mentioned above, this is a conversation we’re having with some of our clients who believe the secular bull market may be in place, but with an attractive reward-to-risk insurance policy like that it alleviates some concern that our bullishness amidst the macro uncertainties may be wrong. -Todd Gordon, Founder of Inside Edge Capital , LLC DISCLOSURES: (Gordon does not own S & P 500 hedges personally, though some clients of Inside Edge Capital, LLC do hold S & P 500 hedges. Charts shown are MotiveWave) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.