Corona Fools Day

Several nations, including Thailand, Germany (of course) and India, have warned against spreading coronavirus-related misinformation on April Fools’ Day, with some countries even threatening jail time for perpetrators. Which makes me wonder: Had the same regulations applied in late February going into March, then wouldn’t many politicians and so called ‘experts’ in the West be sitting in prison right now? But heck, what do I know? I’ve only been warning about the global threat of COVID-19 since February 7th.

Meanwhile over in the woodshed the S&P 500 continues to push into a critical pivot level and what happens in the next day or two will determine the direction of the next major swing in the market.

I am once again sharing a long term chart to show you a bit more context. The current rally most certainly has ticked all boxes of a bear market rally and now the old cat & mouse game begins: Are we done or will we see another leg higher?

Technically speaking we don’t have too much to work with here – just yet – but we are getting closer. I usually would ignore those weekly/monthly Bollingers without a bit more history but given that they both correlate they may be worth watching.

The volume profile chart shows us a shallow volume hole just above ES 2650 and as I stated on Monday – it’s this cluster that separates the men from the mice. Should we breach higher then expect a rally into the 3k mark. Which would be way too juicy to pass up IMNSHO.

That said SKEW is still exerting a strong headwind for anyone considering a long position. We have not yet covered the concept of an in/out spread here at Evilspeculator but in a nutshell it’s a position that attempts to offset the cost imposed by extrinsic (time) value by buying an ITM option whilst selling an OTM option against it.

In/out spreads are usually centered around the ATM strike (hence the name) and the ones you see above are based on yesterday’s close. Keep in mind that this will most likely change at today’s open, but the concept should be clear.

I’ve put together to equal spreads – a call debit spread and a put debit spread. They are essentially identical to each other except for their intended direction of course. I am sure you’ve already picked up on the large price difference between those two and although some of that may be related to after hours shenanigans I expect some of that to hold up after the open as well.

What’s important to realize is that even if you KNEW that we are pushing higher it’s not a trade I would be taking as paying $3.53 for a $5 spread is completely insane. You are basically paying $3.53 in order to make $1.47 – assuming a fair bid. You should never ever pay more than $2.50 for a $5 in/out spread and for a $2 spread I wouldn’t pay more than $1.05ish.

Which makes the put spread a suspiciously good deal and I’ll be watching the tape and the Zero indicator a little before I pounce on that one.

Same story on the cubes so it’s not an isolated case – we are seeing this across the board. If nothing else this points toward the ongoing confusion and growing risk perception that continues to permeate equity markets.

I’m still in my ZB campaign and my ISL remains. So far it’s looking like we may see another rip higher. Tough to really predict anything here as volume continues to be non-existent in the bond market with the Fed acting as the buyer of last resort. Fortunately (or unfortunately from a non-trading perspective) they’ve got unlimited pockets.

Much to my chagrin my stop on the DX futures was touched by just a tick or two earlier this week but I’m back in after a bounce back higher to my entry range. Odds now are better than before but obviously this is a fluid campaign given that the Fed may announce new measures any day.

More market analysis and setups below the fold for my intrepid subs:

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