When it comes to the stock market, “the best time to buy is when there’s blood in the streets”. This quote it credited to Baron Rothschild, a British noble in the 18th century and member of the Rothschild banking family.
I like the modern day analogy that when the stock market hits the front page of the news because of a panic it’s time to buy. When stocks are on the front page of the news because their making all-time highs, it’s time to sell.
Warren Buffett has also said “You pay a very high price in the stock market for a cheery consensus.”
There certainly isn’t any blood in the streets right now, but there really is a cheery consensus. It’s almost impossible to find the last remaining bear. I don’t think there are any left at all.
That being said, this chart of NDX concerns me. Check out the negative divergence.
I don’t think NDX can head higher unless RSI takes out the previous high of 70. Keep an eye on MACD as well for a bearish cross. If we do fall, 3900 is key support and below that we could get a bounce at 3800.
Now might be a good time to nibble some shorts. And I do mean nibble as if you’re too aggressive you could get your face ripped off by this relentless rally.
Out of the money puts are cheap right now, look at strikes 5% out of the money in the September expiry.
Otherwise if you think the market will drift slightly higher or trade sideways over the next few weeks, look at at-the-money butterflies.
Happy trading.
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