{"id":58871,"date":"2022-01-24T20:29:24","date_gmt":"2022-01-25T04:29:24","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=58871"},"modified":"2022-01-25T00:56:09","modified_gmt":"2022-01-25T08:56:09","slug":"a-time-for-discipline-not-precision-the-market-breadth","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2022\/01\/24\/a-time-for-discipline-not-precision-the-market-breadth\/","title":{"rendered":"A Time for Discipline, Not Precision – The Market Breadth"},"content":{"rendered":"\n

Stock Market Commentary<\/strong>:<\/h2>\n\n\n\n

The week’s trading started with intraday extremes to the downside and upside. With such wild swings at work, it is tempting to look backward and conclude that timing bottoms and tops are possible. This reach for precision distracts from the discipline required to navigate through the volatility. Relying on trading and investing rules prevent infection from the market’s manic behavior, tantrums, and euphoria. The outcomes are beyond any one person’s control. However, the decisions and actions are controllable with discipline. This market of extremes places a high premium on this approach. <\/p>\n\n\n\n

The Stock Market Indices<\/strong><\/h2>\n\n\n\n

In the previous “Market Breadth”<\/a>, I claimed that “…there is likely only so much further the S&P 500 will fall before a significant oversold bounce unfolds.” That decline turned out to be 4%. From there the S&P 500 (SPY) rallied sharply to close out the day with a 0.3% gain. Buyers saved the index from a confirmed breakdown below 200-day moving average (DMA) support (the blue line below). At the lows, the S&P 500 extended well below its lower Bollinger Band (BB) to reach prices last seen during a brief pullback last June. <\/p>\n\n\n\n

Extreme oversold conditions were rampant across the stock market. Per my plan, I went into bullish mode. As the S&P 500 tested the October low, I added to an existing SPY Feb 04 $450\/$460 call spread with a $440\/$435 weekly calendar call spread. The short side coincides with the 200DMA. For this position I am betting that either the index stalls around its 200DMA for most of the week, and\/or implied volatility implodes for this week’s expiration faster than for next week’s expiration. If SPY just races ahead, my $450\/460 call spread will quickly benefit.<\/p>\n\n\n\n

\"The<\/a>
The S&P 500<\/a> (SPY) finished with a 0.3% gain after falling as much as 4% at the intraday low.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

At its intraday low, the NASDAQ (COMPQX) approached bear market territory. The 18% loss from the all-time high stopped just short of the 20% decline that defines a bear market. Moreover, the NASDAQ just barely avoided wiping out all its gains for 2021. Buyers were particularly aggressive in the NASDAQ. The tech-laden index leapt from a 4.9% intraday loss to a 0.6% gain.<\/p>\n\n\n\n

All but one of the extremes described below occurred during bear markets. I consider myself warned!<\/p>\n\n\n\n

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6th time the Nasdaq has reversed a 4%+ intraday drop to close higher (since '88).

Other days:

10\/28\/97
10\/26\/00
7\/15\/02
10\/10\/08
11\/13\/08<\/p>— Bespoke (@bespokeinvest) January 24, 2022<\/a><\/blockquote>