US stocks showed mixed results as the market looked at better-than-expected jobless claims, indicating steady employment. However, new home sales were slow, and flash PMI data provided mixed signals. The European Central Bank kept interest rates unchanged, with no clear direction from Lagarde. Yesterday, the Dow industrial average nearly set a record, closing just four points away. Today, it is down 0.38% at 44,842, below the all-time high of 45,014.04.

Stock Performance Updates

The S&P index is up slightly by 0.15% or 9.45 points, now at 6,368.12. It reached a record high yesterday and hit an intraday high of 6,374.63 today. The NASDAQ index is also up a small amount by 0.06%, reaching 21,032.10, with an intraday high of 21,107. Alphabet shares rose by $1.94 or 1.0% to $192.05 after beating earnings expectations. The price did drop from an earlier high of $197.95. Since its low in April, the price has gone up by 35.20% but is still below the all-time high of $207.05 from January. The 50-hour moving average is at $186.44, indicating downside risk if it falls below this level and then the 100-hour moving average at $182.12. We see mixed performance at record highs as a reason to protect our gains. With the CBOE Volatility Index (VIX) recently close to multi-year lows around the 12-13 level, buying protective puts on broad market ETFs is a cost-effective strategy. This allows us to benefit from further rises while securing our portfolios.

Market Strategy Considerations

The difference between strong employment data and slow new home sales creates uncertainty for the Federal Reserve. We expect more volatility around key reports, like the upcoming Consumer Price Index, as inflation remains a concern. Thus, we may consider using straddles on market indices before these events to take advantage of any significant price movements, regardless of direction. The European Central Bank’s neutral position adds to the global uncertainty. The lack of guidance suggests caution for European-focused investments, especially since recent ZEW economic sentiment surveys for the Eurozone showed ongoing pessimism. Hedging with options on European-focused ETFs is a smart move against unexpected policy changes abroad. Regarding individual stocks like Alphabet, the drop from post-earnings highs despite a strong report is a typical sign of profit-taking. We observe that implied volatility has likely decreased sharply since the earnings announcement, making it a good time to sell premium. A bear call spread above the recent high of $197.95 could benefit from a potential flat or downward move toward the moving averages. Create your live VT Markets account and start trading now.

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