2021-03-21 Sunday

WEEKLY MARKET OVERVIEW

Inside last Weekly Report I wrote: “with most indices in overbought territory, some sort of consolidation or minor pullback would be normal and acceptable.”

SPY on 2021-03-12

This is exactly what happened this week with the S&P500 (SPY) pulling back to oversold territory and just above the trend line that has been holding as support since the US presidential elections.

SPY on 2021-03-19

Weekly performance (Week 11/2021)
– SPY (S&P500) -1.16%
 QQQ (Nasdaq100) -0.74%
 DIA (Dow Jones Industrial) -0.70%
 IWM (Small Caps) -2.85%

Despite the recent weakness in mega-tech and growth stocks, the overall uptrend of the broad market looks pretty much intact, with sector rotation still favoring value stocks after months of underperformance against the rest of the market.

Comparing the performances of four of the most relevant ETFs such as SPY (S&P500), QQQ (Nasdaq100 Mega-Tech Stocks), DIA (Dow Jones Industrial Mega Caps), and IWM (Small Caps), we can get a better idea of how the US stock market has been evolving since the Covid crash.

Looking at the big picture from the start of the pandemic, mega-techs and small caps have been by far the best performers, with mega caps being the laggards.

Market performance from the pre-Covid crash

Just after the US presidential election, small and mega caps have been the last areas of the market to reclaim the pre-Covid all-time highs, and since then small caps have been clearly outperforming the rest of the market.

Market performance from the US presidential election

Since the beginning of the year, and particularly over the last month, sector rotation to mega-caps and value stocks has been broadening the participation to the upside run also to market areas that have been lagging during 2020.

Market performance from the beginning of 2021
Last month market performance

Volatility (VIX) still around the 20 range, but for the first time since the Covid crash it spent part of the week below the 20 level.

VIX
VIX

WEEKLY TRADING JOURNAL

Despite last week’s overall market weakness, my trading has been back to a decent level of activity.

On Friday I bought to close the NET 03/19 CSP $70 for a $0.10 debit. I was able to keep 96% of the total premium for a 48% AROI in 24 days. In the middle of the market pullback, I had to roll the position out in time for a net credit (keeping the same strike) to avoid assignment, but in the end, I collected a great profit despite at the exit of the trade the stock price was lower of the one at the entry. 

NET

The NNOX 03/19 CC $52.5 expired worthless, generating an 85% AROI over 16 days, and more importantly, reducing my cost basis on the shares I keep holding.

NNOX

Finally, on Thursday, I played a pre-earning covered call on NKE after a nice run to the upside. I sold to open NKE 03/26 CC $150 for $2.00 credit and 0.31 delta, taking advantage of the high implied volatility due to earnings being released after market close on the same day. The post-earnings price drop and IV crush allowed me to close the trade on Friday for a $0.15 debit, keeping 93% of the premium for a 450% AROI.

NKE

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