The Arena
Writing this tonight the E-mini futures are trading lower by 25 points. Which seems in line with the way I’m feeling about the market this week. We’ve essentially been split into two camps as of this moment. One, we believe the market will continue its bearish decent. Two, we believe the bottom is in and we’re buying before any rally. However, I’m moving forward cautiously on the ground that bears have claws.
That said, we’ve seen nothing but bearish behavior this year so it isn’t unfathomable that we do see a break from the downtrend while prices bounce around. Historically, when the market is split I believe ranging markets are the result. Do I think this bear is done, no I don’t. Do I think the market will be bullish anytime soon, no I don’t. Basically, I have no idea what happens next. Moreover, it’s not like much has changed since last week, or last month for that matter so why so many are claiming the bottom is in is anybody’s guess. Only time will tell…
The Coach
Like most stocks this year American Express has developed a case of whooping cough and is currently under medical care. Having shed nearly 29% since its peak in February, American Express Company falls right in line with most equities I’m watching at this time. It is worth noting that AXP did notch a new high “this year” which isn’t a claim many other assets can make. However, the condition of this credit card giant isn’t particularly clear (what trade is, right?) which is why I’m considering an iron condor for the days ahead.
My analysis suggests that American Express Company is currently trading in line with its fair value from a couple of different calculations. Namely, discounted cash flow and the price prediction formula. Graham’s formula and my own valuation calculation suggest more bearishness ahead. Being that the 4 valuation models I use are split, I think now would be as good a time as any to consider a neutral position as American Express sits in the waiting room at the clinic.
For more on the state of American Express Company here’s a breakdown from Stockinvest.us: American Express Company Stock Forecast.
The Attack
If blindfolded dart throwing is your game of choice then taking a bullish position here is the bartenders recommendation. However, I don’t see us turning bullish very soon and I also can’t see continued bearish pressure without some relief. American Express last saw a meaningful rally back in May which would suggest another one is possibly ahead. My thought process as of right now is to become neutral, allow the stock to fall further with the market, then exit during the relief rally that follows.
While I consider a neutral position, maintaining a bearish thesis is more than likely the sound approach here. Additionally, I’m kind of setting up this trade with the pre-conceived notion that the put spread will be busted for a period. That’s the warning, trade safe. What do you think? Am I way off base in my rationale? Is this going to tumble so far down that even the relief rally will be waving up from below? Let me know in the comments below.
Bullish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 120 Put | 16 SEP 22 125 Put | $100.00 | $400.00 | 89% |
Neutral assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 120 Put | 16 SEP 22 125 Put | $220.00 | $280.00 | 68% |
| 16 SEP 22 160 Call | 16 SEP 22 155 Call |
Bearish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 160 Call | 16 SEP 22 155 Call | $122.00 | $378.00 | 85% |
God Bless,
Jeff
