Choppy Markets
Some days the market can’t seem to make up its mind. Unusually, the market has one or two segments that are strong during the day, others that are weak, and that trend stays pretty constant throughout the day. Choppy days are when the same market segments are up and down throughout the day, but the overall market does not really change that much. There is no clear direction or trend. This kind of chop can generate some nice trades but you have to pay attention and trade fast.
When you have had a long upward trend like we have had, expect chop. Markets can not go up forever and when the market chops around it is actually a good sign. It means there is hesitation by market participants, not brainless euphoria. Euphoria should worry anyone.
How do you use chop? Assuming you have a list of stocks you want to own (or own already) use the direction to sell options: when there is an upswing, sell calls. Use the downward swings to sell puts. When the stocks reverse reverses during the day, buy back your calls and puts. Do not be greedy on choppy days. You will be better off, selling and then re-selling rather than waiting for a big score. I sold three ROKU calls today, bought back two of them and left the third for tomorrow as I assume ROKU will sell off (it generally has large swings. alternating days up then down).
I generally do not buy stocks for investment purposes on choppy days. I always prefer my investment purchases to be on big down days or when a stock sells off on temporary bad news. Buying on choppy days will almost always make you grumpy as you are likely to see the price fall below what you paid at some point in the day. If you must buy, use a limit order and put it at the very bottom of the bid/ask range, or even below. That way if you are filled, you will feel lucky.
Chop lets me sell some additional calls and puts which, with luck, will reverse tomorrow. It is a good day to set yourself up for the next day. Since we closed at a record high today, it is very likely we will start the day down tomorrow and I will quickly close whatever contracts I can.
Market Today: Record highs to start November. Energy was at the top of market segments that up (only IT and Healthcare were down). Lots of potential market catalysts this week. Over 964 potential catalysts, mostly company earnings reports. But we also have a big report on Oct job numbers on Friday and of course the Fed meeting on Wednesday. Could shake things up. Stay sharp. 11.7