Market Overview

Options Outlook For The Week Of March 31: Will Friday's Follow-Through Continue This Week?

Options Outlook For The Week Of March 31: Will Friday's Follow-Through Continue This Week?

Last week was tough, but ended on a good note.

The tough part was a clear inverse relationship between the YEN and TLT rising and taking down the ten-year and the markets almost tick for tick. Traders had a couple of fake out days that ended in major damage for the bulls.

The good end note came on Friday when the markets fended off another effort to turn green into red. More to this point is that the Friday mid-day slide was NOT the same as all the other slides.

It did not come with a rise in YEN/TLT. In fact, these two dropped from the open and stayed depressed into the close. The slide came about the same time CNBC started talking about mounting Russian troops on the Ukrainian borders.

Also, it was traders booking profits from early trading and lightening a bit going into the weekend.

The YEN: On Friday, a very important thing happened. The yen upward chug may have broken. Zoom out to the 180-day chart and you'll see that it turned bearish. This is good news for stocks as the yen has been inversely trading with markets. It goes up and markets go down.

Now, traders may actually be cutting that off. Monday may confirm it.

This is a complex and multi-way inverse relationship: Yen and TLT vs. 1-year and markets; Thursday saw hints of it but Friday saw follow through!

The VIX (volatility gauge): VIX knew what's really up with Friday session: 'much ado about nothing. That's two red closes for the issue.

However, it is important to note that traders bought more calls than puts (again hedging against the new longs they took. The action though was almost all at the mark so calm transactions and most too close to the 45-delta (so coin flip bets).

MOMOs: On Thursday, some momentum stocks rejected the morning lows and some even closed very green. On Friday, MOMOs came out with screaming bounces, then slid -- but still a lot of them closed green.

So, that's two decent days from the perceived froth. Scared markets usually don't dare buy froth when faced with real danger.

  • Google (NASDAQ: GOOG) took a lot of damage so it's a decent consideration for the shopping list. Also note that it will split in two different tickers.
  • Apple (NASDAQ: AAPL) held up very well in the face of extreme market concerns. Though it may not need a headline to breakout, traders might look to sell some credit put spreads.
  • LinkedIn (NYSE: LNKD) also showed some good signs of strength. The issue will most likely be a relief pop and not a fundamentally drive move.

Caution is warranted since we are still in headline risk mode where danger looms on every corner.

BUT, if traders get a lack of negative headlines, we have a chance to stabilize and rebuild some momentum.

So traders should keep watch on the following issues:

1) Russia/Ukraine: Not much trouble expected until Ukrainian elections in May

2) Asian finances: China and Japan are playing with fire and someone may get burned. If so, the ripple effects can be brutal.

3) US economic indicators: mainly the job numbers.

Check out the video below for a recap of this week's outlook:

Posted in: Options Pre-Market Outlook Markets Trading Ideas Best of Benzinga


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