That Won't Happen...

Welcome back to Hitting the Bid Weekly!
We’ve got a packed week ahead with major earnings and key economic reports - plenty of potential market movers to keep things interesting. Let’s jump in!

On Deck This Week

• Around the Market

• The Week Ahead

• Tickers of the Week

• What’s Top of Mind

Around the Market

Equities Can’t Find a Clear Direction to Start the Week

Over the past week, the S&P 500 (via SPY) is up about 7.2% (from the April 21^st close to the April 28^th close) - a strong move. Still, equity indices haven’t yet recovered to their April 2^nd closing levels.

On the chart below, I’ve marked a red horizontal line and yellow circle highlighting the price gap between the April 2^nd and April 3^rd  candlesticks. These kinds of gaps can sometimes matter - acting as key support or resistance levels.

To kick off the week, SPY traded in a wide $8.53 range on Monday, which is relatively large - but the price still seems undecided. It closed just $0.54 lower than the open, and only $0.21 above last Friday’s close.

Zooming out, SPY shows some recent positive momentum, but I’m seeing conflicting signals. With a flood of economic data and earnings on deck this week, momentum could shift quickly - so it’s a good time to stay nimble.

Other notable market moves since last week:

• Volatility (VIX) has dropped from the low 30s to the mid-20s

• Gold has pulled back from its April 22^nd highs, but downside follow-through has been limited

• Bonds are showing signs of positive momentum

• The US dollar bounced off recent lows, but the rally may be stalling

• Crude oil (front-month futures) is trading around $61/barrel and negative momentum is picking up

• Bitcoin is up roughly $6,500 week-over-week, continuing its bullish price action

The Week Ahead

Economic Calendar

• GDP Growth Rate (Wed 4/30)

• PCE Price Index (Wed 4/30)

• Bank of Japan Rate Decision (Wed 4/30)

• ISM Manufacturing PMI (Thu 5/1)

• Non Farm Payrolls (Fri 5/2)

• ISM Services PMI (Mon 5/5)

Earnings I’m Watching

• Starbucks SBUX (Tue 4/29 after close)

• Caterpillar CAT (before open 4/30)

• Meta Platforms META (Wed 4/30 after close)

• Microsoft MSFT (Wed 4/30 after close)

• Apple AAPL (Thu 5/1 after close)

• Amazon AMZN (Thu 5/1 after close)

• Exxon Mobil XOM (before open Fri 5/2)

• Ford F (Mon 5/5 after close)

Note, this list is not all-inclusive of potential market movers. These are just a few items I’m interested in for their impact on the market.

Tickers of the Week

With the VIX settling into the mid-20s, I’m starting to incorporate more company-specific equities into my portfolio this week.

This first quarter has created a lot of churn and uncertainty, and I suspect many companies are struggling to provide clear guidance for the rest of the year. Because of this, I’m avoiding trades ahead of earnings reports, given the potential for outsized moves in pre/post-market trading.

One trend I’ve noticed: implied volatility (IV) is staying elevated even after earnings, as seen with Alphabet (GOOGL), Tesla (TSLA), and Kroger (KR). I expect a similar pattern for companies reporting this week.

In particular, I’m watching Microsoft (MSFT) and Amazon (AMZN), which report earnings on Wednesday and Thursday, respectively.

Because I anticipate IV to remain elevated post-earnings, I’m planning to use option-selling strategies to take advantage of the richer option premiums (since higher IV typically means higher option prices). Given the higher stock prices of these names, I’ll likely stick with risk-defined strategies - like credit spreads or iron condors - to manage capital use efficiently.

What’s Top of Mind

“That won’t happen…”

Three simple words - but for traders, every variation of that phrase is a trap we have to work hard to avoid.

I’ve fallen into it myself more than once. Two moments stand out:

• Selling naked puts in RSX (the now-delisted VanEck Russia ETF) back in 2022

• Selling mini volatility index futures (VXM) just this past March

And what was I thinking both times?

Obviously, I was dead wrong on those predictions.

As traders, we have to think in probabilities, not certainties. While black swan or tail-risk events may be unlikely, it’s crucial to factor in the potential consequences if they do occur. Dismissing those risks with a simple “this won’t happen” mindset is a fast track to a portfolio value of $0.

While both of these were losing trades, my account survived because I stayed small relative to my overall account size when entering the positions. (We’ll dig deeper into this concept next week.)

I was aiming for base hits, and while I may have struck out in these cases, they were valuable learning moments - ones I’ll carry with me the next time I catch myself thinking, “that won’t happen…”

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Hitting the Bid content is for informational and entertainment purposes only. The information contained is not, nor is it intended to be, trading or investment advice or a recommendation of any security, futures contract, digital asset or alike. Trading and investing contains risk. All investors should evaluate their own risk tolerance, financial situation, and investment duration before entering any trade or investment.