Weekly Stock Market Outlook 8/9/2020

Summer has flown by & we find ourselves in the second week of August already. August tends to see an uptick in volatility each year (I believe someone on Bloomberg said ~4% on average), which could make for some interesting trading conditions over the next three weeks.

S&P 500, NASDAQ & Dow Jones Are All Spreading Apart

As we are to be expecting an uptick in volatility, lets check in with the charts. Below is the chart for the S&P 500 for the last year, with the NASDAQ (Purple line) & Dow Jones Industrial Average (Aquamarine line).

The S&P 500, NASDAQ & DJIA are all recovering at very different rates, fueled by cap size & company type

The NASDAQ has recovered much faster & more aggressively, as it is being fueled by Biotech bets, and tech companies that are helping people work from home in the new age of COVID. Looking at February 2020, at their most spread apart point in the last year, these indexes were all much closer to one another in performance.

The VIX Performance For The Past Year

Looking at the VIX, it seems that things are taming down, but with a performance spread that far apart, there will likely be an ugly correction coming up in the future, as the VIX is still above where it was when the indexes were performing more in unison.

What We’re Watching For In The Market This Week

There are going to be a lot of diverse companies reporting earnings this week, which should add to the rocking of the boat. There are going to be companies in the tech & biotech sector who may be chopped down to size based on them growing at the rate of their peers (on speculation), and other companies in battered down sectors such as travel will be reporting what look to be dismal results.

Will the markets be looking ahead and past this bad quarter, or will the inevitable reality check come back to haunt us, reminding market participants that there things aren’t back to normal yet, and there is still a long road ahead of us for getting people back and actively involved in the economy.

US Job openings will be something to keep an eye on, as we look to see how many people are returning to work, after being surprised week-over-week by the numbers of jobless claims that have been reported. There are going to be a number of Fed speakers this week, and US PPI numbers will be Tuesday as well.

Inflation data & Mortgage application numbers should also be interesting, as despite the trying economic times, people are fleeing the cities to buy homes in suburban areas.

Crude oil stocks, jobless claims & retail sales & industrial production numbers will also be interesting to watch as they come in, to see if they are in line with what the market’s performance seems to be expecting.

Recent Options Bought – Ford $F Straddle, $REAL Puts, $PETS Calls

I’ve been studying options more of recent and began trading them a month and a half or so ago. Some of my recent purchases were $REAL $12.50 puts with a 12/18 expiration. I don’t see people having much demand for their products this year, especially given the fact that so many states are flip flopping on their COVID responses as infection rates fluctuate.

I also purchased some $PETS $35 calls with a 9/18 expiration after their drop on earnings. I liked the stock prior to that, as I had recently written about it in the stock research section of the site.

Also, I have a $F $6.50 ratio-straddle that expires on 8/28, with a ratio favoring the puts 3:1.

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