Midweek Options Update 10/28/20

The Covid-19 numbers have been picking up worldwide for weeks now but the markets have brushed them aside due to the hopes of more stimulus. Now here we are with the virus continuing to spread at a rapid pace and no stimulus to speak of. As a result markets are again pricing in the fear of another shut down.

Markets were down across the board today on bigger volume which has been the missing link on other selloff attempts. We have been talking the last few weeks about looking for SPY volume to pickup towards the 80-100 million share range. We hit that 100 million share number today indicating conviction behind the move.

We also saw selling across the board with all sectors participating. There were very few pockets of strength market wide today. The VIX closed above 40 which indicates uncertainty coming back into the markets causing the options to become very expensive.

SPY has not only broken the 50 EMA on the downside but is also working on selling off below the 89 EMA as well. These are support levels that have held for months now. Should price continue to head lower we are looking at the 200 EMA down at 319 as the next area of moving average support.

Keep in mind we do have a number of huge earnings releases out tomorrow afternoon in the tech sector. AMZN, AAPL, FB, and GOOGL all release their earnings Thursday after the close. That is a catalyst to provide another big move going into the end of the week. Should we see some reversals out of the tech sector over the next few days, that could lead to a quick recovery back higher.

Once we get past the earnings releases out Thursday afternoon, the focus will return to the pandemic headlines and potential stimulus news along with election news. All that to say we are set up for a noisy next 2 weeks. We will continue to keep the risk small and focus on using more vertical spreads to take advantage of the high volatility.

In our Midweek Options Update video below, we take a look at where we stand on key markets like SPY, QQQ, IWM, NFLX, JPM, BAC, TLT, and ORCL. Take a look and let us know if you have any questions. Mike@netpicks.com.

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