Another re-test of the recent lows, or do we grind higher? $SPY $QQQ $IWM $VXX $UVXY

I’m on Maui right now so the Fast Money Halftime report airs at 7 am. That’s right about the time I head out for a run, so I tend to listen to it through my phone.  Here’s a view from my running route. 

Sometimes it’s hard to pay attention! 

Tony Dwyer was on again today, so I paid close attention. You may recall that he predicted the most recent downturn last month but said that the downturn would be the opportunity to buy. 

Today, he strongly believes that we retest these lows. He is not recommending selling and running for the hills but instead says when it comes, don’t panic and sell, but instead buy the dip. 

I tend to believe him, but I am not convinced of his historical argument. I agree that the past gives us an idea of what can come next but I also subscribe to the adage that is, this time it’s different. Actually, I think it’s always different, each and every time.  

Here’s what I think is different. For one thing, this recent pullback shook a lot of confidence. Howard Lindzon’s newsletter talks about the return of fear this morning. Tony Dwyer’s previous call for a downturn was based on market sentiment becoming too bullish. That’s no longer the case, as evidenced by the big data provided by Stocktwits bullish/bearish indicators.  

Secondly, the QQQ’s remain positive, even this afternoon when SPY has turned negative. That means the big players, AAPL, GOOGL, FB, AMZN, etc are still getting bids. I think its hard to have a meaningful pullback without these names coming under pressure. 

Having said all that, I have hedged my longs just a bit. How? 

  • In my speculative account I bought more UVXY and sold a next week 18 call for a net debit of 14.95 (a buy/write) 
  • In my less risky account where I only trade in SPY options I bought an April 20 270/260 put spread for net debit of 2.12 (I bought this at about 10:15 am eastern when it looked as if the SPY was going to close higher today). 

I have not taken either of these trades off today, although I could probably make a small profit on the put spread.  

Today’s market close was pretty ugly, but its hard to say if it’s the start of something bigger or not.