US stock indices have turned negative today. The S&P and NASDAQ have dropped from their new intraday highs, and the Dow industrial average is lagging, down by 0.32%. Currently, the S&P index is down 0.04%, and the NASDAQ index is down 0.01%. A recent CNBC survey found that 84% of people think the market is overpriced, the highest percentage recorded, while only 16% feel it is fairly priced.

Big Cap Company Performance

Several major companies will report their results this week. Meta’s stock is down 0.53%, trading at $714. Microsoft has risen slightly by 0.15% to $513.25. Amazon is down 0.86% at $230.79, and Apple has fallen by 0.65%, now at $212.65. Nvidia has seen an increase of 0.43%, reaching a new intraday high of $179.38. AMD is up 3.5%, trading at $179.65, after hitting a high of $182.31. However, SMCI has dropped 0.52% today, trading at $59.74, after a significant gain of over 10% the day before. The market shows clear signs of exhaustion. Major indices like the S&P 500 and NASDAQ hit new all-time highs but quickly reversed lower, which often indicates a short-term peak. With 84% of market participants feeling stocks are overvalued, investor sentiment is at an all-time high. This nervousness is reflected in the options market. The CBOE Volatility Index (VIX), often called the “fear gauge,” has risen from around 12 to over 14.5 recently. The equity put/call ratio has also increased to 0.70 from 0.55 last week, indicating that traders are buying more puts to protect against a potential market downturn.

Economic Influence on Market Strategy

The economic situation adds to this cautious outlook. The latest Personal Consumption Expenditures (PCE) inflation report showed a reading of 2.8%, slightly above expectations, which keeps pressure on the Federal Reserve to maintain its tight policies. Market attention now turns to the upcoming jobs report and inflation data for August, likely to drive market movements. Given these conditions, now may be a good time to consider some protection strategies. Since implied volatility is low compared to historical rates, buying puts on broad market ETFs like SPY and QQQ is a straightforward way to hedge long portfolios. These moves would profit from a drop in the market or a rise in volatility. To save costs, we are also exploring put debit spreads. These allow us to set a defined risk while targeting specific downward moves in the market over the next 30 to 45 days. The lagging Dow Jones, tracked by the DIA ETF, could be a strong target for bearish strategies since it hasn’t participated in recent highs. While the overall market appears weary, there are still strong performers in AI-related companies like Nvidia and AMD. For traders with positions in these stocks, using a collar strategy could be wise. This involves buying a protective put while selling a covered call against the position, enabling one to safeguard profits from substantial drops while covering the hedge costs. Create your live VT Markets account and start trading now.

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