Chipmaker Rally

Amazon’s stock dropped nearly 9% after announcing a huge $200 billion spending plan for 2026. This plan focuses on data centers, chips, and networking gear for AI, which surprised many investors. As a result, brokerages adjusted their price forecasts, and there were worries about short-term profits. CEO Andy Jassy noted a strong demand for their services, but doubts still linger. The Dow Jones saw a record gain, boosted by strong financial and industrial stocks. JPMorgan Chase gained 3.2%, and Bank of America climbed by 1.6%. Caterpillar Inc. rose 3.9%, while Oracle Corporation jumped 4.1%. Recently, investments have shifted towards sectors connected to the economy, benefiting the Dow more than the Nasdaq. The University of Michigan’s Consumer Sentiment Index rose to 57.3, exceeding expectations. This increase, the highest since 2025, was primarily driven by wealthier stock investors, but overall sentiment is still weak. Inflation worries and job insecurity remain, even as inflation expectations have slightly decreased. Molina Healthcare Inc. faced a massive 28% plunge after a poor earnings forecast for 2026, blaming high medical costs in government insurance plans. The sector faces challenges due to a mismatch between healthcare payments and the growing demand for services.

Market Instruments and Trading Strategies

The Dow Jones Industrial Average includes 30 major US stocks and responds to economic data, company earnings, interest rates, and inflation. Dow Theory, introduced by Charles Dow, analyzes trends using the Industrial and Transportation Averages. Investors can access the DJIA through various financial products. After the Dow hit a record high on February 6, 2026, we expect increased market volatility in the weeks ahead. The 1,050-point swing indicates significant market uncertainty, presenting opportunities for those trading volatility instruments like VIX futures or options on the SPDR S&P 500 ETF (SPY). A similar rise in volatility occurred around market highs in late 2025, suggesting caution is needed, even with new records. The clear difference between Amazon and chipmakers like Nvidia offers a potential trading strategy. We could buy call options on semiconductor ETFs like the SMH to benefit from the surge in AI spending. At the same time, purchasing put options or selling call spreads on Amazon could protect against losses as the market adjusts to its $200 billion spending plan and profit concerns. We are also noticing a shift from growth-focused tech stocks to cyclical and financial sectors, which have driven the Dow’s success. This trend, which has been gaining momentum since late 2025, suggests favoring long positions in the SPDR Dow Jones Industrial Average ETF (DIA) over the Invesco QQQ Trust (QQQ). Options traders might consider selling put spreads on DIA while buying them on QQQ to take advantage of their differing performances. Recent consumer sentiment data indicates a rise to 57.3, which reflects economic vulnerability despite the stock market’s rise. While stockholders feel more optimistic, weakness among other consumers could eventually affect overall spending. This difference supports strategies like collars on broad index ETFs, helping protect against downturns while still allowing for potential gains. Volatility in individual stocks, especially Amazon and Molina Healthcare, is expected to rise significantly after their price drops. This increase in implied volatility creates an opportunity for traders to sell options premium, although it comes with risks. For instance, selling cash-secured puts on Amazon at lower prices could either generate attractive premiums or allow for the purchase of the stock at a discounted rate. Create your live VT Markets account and start trading now.

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