The stock market had mixed results today. The Dow Jones climbed 179.37 points, or 0.40%, closing at 44,502.44. The S&P 500 gained 4.02 points, or 0.06%, reaching a record high of 6,309.62. However, the NASDAQ dropped 81.49 points, or 0.39%, ending its six-day winning streak at 20,892.69. The Russell 2000 saw an increase of 17.62 points, or 0.79%, reaching 2,248.75. In company news, Alphabet’s shares rose by $1.24, or 0.65%, to $191.34, marking ten straight days of gains, with earnings announcements expected soon. Tesla’s stock went up $3.62, or 1.10%, to $332.11, also with an earnings release on the horizon. On the other hand, Netflix shares fell by 3.5%, hitting their lowest point since June 10 and down 11.3% since June 30’s peak. Key chip stocks like Broadcom, Nvidia, and AMD dropped by 3.34%, 2.54%, and 1.45%, respectively.

Technical Performance Insights

From a technical perspective, the S&P index tested and bounced off the 50-hour moving average during its lows, allowing buyers to hold their ground. This indicates limited selling pressure in the current market. Given the varied performance, there are opportunities for divergence plays. The broader market’s strength, as shown by the S&P’s record close, suggests a bullish stance there. However, the NASDAQ’s recent drop implies we should be cautious in the tech sector. Sellers struggled to gain control at an important technical level, which continues to support a positive outlook for the broader market. The recent Consumer Price Index report, showing inflation cooling to an annual rate of 3.3% in May, strengthens this view, raising hopes for interest rate cuts. We believe selling out-of-the-money put spreads on the SPY ETF is a smart way to express this bullish sentiment. On the flip side, the drop in chip stocks and the NASDAQ’s broken winning streak signal the need for caution. Historically, following a multi-day rally, a consolidation phase or sharper pullback often occurs as investors take profits. This suggests the possibility of buying protective puts on the QQQ ETF to safeguard against a downturn in tech shares.

Volatility and Options Strategy

The CBOE Volatility Index (VIX) is currently near two-year lows, trading around 12.5. Such low volatility allows for cheaper option buying, creating an excellent opportunity to position for the upcoming earnings reports we’ve discussed. For companies with earnings announcements near, we should consider strategies that benefit from significant price swings. A long straddle or strangle can help capitalize on the increased volatility that earnings typically bring, eliminating the need to predict the direction of post-earnings moves. The strength in the Russell 2000 is significant, indicating a broader market rally beyond just mega-cap technology. This rotation toward smaller companies is a positive sign for the overall economy. We view this as an opportunity to explore bullish call option strategies on the IWM ETF, expecting this trend to continue. Create your live VT Markets account and start trading now.

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