Options Outlook for the Week of August 18

Recap: Friday was a disappointment for the bulls but capped a week that should be viewed as comforting. Why? Because traders had the opportunity to peek into what a whoosh down looks like and survived it. This usually gives traders a downside scenario against which they can guard their portfolios. The strong open on Friday quickly faded to redness. The Nasdaq held strongest. Next week: Understanding the reason WHY markets dropped allows traders to strategize trading this week. The bulls hit the sell button as headlines of Ukraine destroying Russian convoys hit the wire. The bullish view to this is that is a temporary event and not one that changes the macro thesis. So from this perspective, one should go long a few good tickers this week while hunting a few extended ones and there are plenty of those. The bearish point of the drop is that the Ukraine event was merely a trigger to an underlying problem in the markets. Selling so fast following a trigger reveals a lack of conviction in the long market thesis. A strongly convicted bull would not be so quick to sell his or her position following one headline. Coming into Monday's open without new negative geo-political headline should be positive markets. Chasing the opens can be painful so letting the open wash out could turn out to be the right thing to do Monday morning. Technically, the S&P is still trying to repair the broken rising wedge trend from a few weeks ago. The small caps starting the next chop up leg of their see saw trend of 2014. The Nasdaq looking strongest thanks to good reactions to earnings. The global thesis is still intact: bulls want to run but are weak longs; bears are lazy and not pressing issue. It is important to note the perspective that the S&P is back to levels from which it broke down on 7/31. the imp part is that it LOOKS like it's breaking the down trend that was going on BEFORE the crater on 7/31. The Nasdaq on the other hand is close to recent highs. Left alone they have some room to go. Check out the video below for a full recap of this week's outlook: