New all-time highs have the market bulls prancing as the first six weeks of 2024 have proven fruitful for those invested. Here’s a lower-cost trade that wins if there’s more upside ahead. The near $8 trillion in cash on the sideline (being hoarded by the bears) remains perplexed as U.S. equity markets focus on a better-than-expected earnings season, continued consumer strength, and cooling inflationary data. Additional inflationary data revised by the U.S. government, lowered its December consumer price index to just a 0.2% increase, down from a 0.3% increase initially reported. Cooling inflation remains a tangible theme for investors globally. SPY 1Y mountain S & P 500 SPDR (SPY), 1 year Another input into why I believe markets will persist higher in 2024 is that the bears continue to growl just about everywhere on Wall Street. Just this week, a bearish note from JPMorgan equity strategists cautioned investors that the upside for global stock markets is now largely capped. This note also stated: “We stick to our view that upside from here appears limited and that equities will fall 20-30% from a 2024 peak.” The short-term view on volatility via the VIX index is in stark contrast to this dire warning from JPMorgan. Of course, the volatility outlook can change on a dime but, the VIX under 13 reveals that option traders are not worried about the S & P 500 any time soon. .VIX 3M mountain CBOE Volatility index, 3 months What to do now that the equity bulls have vaulted the monumental achievement of 5,000 in the S & P 500? Short answer is: Embrace the momentum . The Trade I want to participate in more upside for the S & P 500 anticipating 5,100 to trade before 4,900. I will define my risk as the S & P 500 just popped into overbought territory when viewed through a RSI (Relative Strength Index) perspective. To reduce the cost of simply being long an at-the-money SPDR S & P 500 Trust call, I want to buy a call spread. When buying a call spread, an investor utilizes the…
2024-02-09 10:31:00
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