Options Warning: This Week To Be Fraught With Sentiment Frailty

Recap: The week unfortunately ended on a weak Friday muddling the fact that we'd seen some incredible results from giant corporations like Google, Apple and Amazon. So even though the scoreboard didn't reflect it, there were some positives on which markets can build next week in the absence of new negative headlines. Next week will be fraught with danger due to sentiment frailty. But left without negative catalysts traders should be able to hold their current position. The options open interest still suggests that markets are still holding on to the 2000 SPX line. Furthermore, some support will come from the support that should come from those mega caps that already reported earnings and have proven to be good buys at these levels; Apple for example. Even those who have been punish hard like Microsoft and Alibaba should find more incremental buyers at these levels than sellers. All traders need is quiet headlines so they can buy on fundamentals. Crude oil made a magical rebound mid day on Friday and neared 50. Should this continue then it would also lend markets some courage to buy and stabilize. The Put/Call ratio on Friday was about 2.5 which can be interpret as bearish. But it is likely that those puts were purchase in defense and in lieu of giving up on bullish positions. If it was fear then the positions would be closed but instead traders are defending because they are nervous. This nervousness can be seen in an elevated VIX (fear/volatility gauge). Traders will have plenty of potential worry sources including the Yen, TLT and the VIX. The TLT (bonds) are in breakout mode surpassing my measured move to 137 this past week. A glimmer of hope for markets bulls is that on a multi-year chart for the TLT shows it at a potential break point (chart below). A point from which it can break down or further out. And considering the distance it's already traveled it is likely that it could be a resting place rather then a break out place. Many experts consider the run for yield resembles a bubble and bubble can't inflate for ever. The VIX price range has been tightening since October and this makes it likely to prime for a big move. The timing will likely coincide with the TLT move but direction is unknown so caution is warranted. The YEN tends to move inversely with equity markets. Although it showed strength this week depressing market performance it remained in check. The threat looms The macro has not changed the globe is still in various stages of recovery mode with the same variables at play. It's what's in the headlines that has been whipsawing sentiment. Our trading ranges have held well so far and we will continue to use them until markets resume trading on fundamentals more often than trading headlines. So long term investor should start to nibble on companies who have reported and they've missed previous entry points. Active traders can scalp trades based on a meander +/-2% around current prices. This can be done via iron condor to create income since volatility is high and premiums are inflated which works perfectly for well-placed credit spreads. Check out the video below for a full recap of this week's outlook: