Right Now the Skew Says Don’t Get Caught Short
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Right Now the Skew Says Don't Get Caught Short

John F. Carter - February 4, 2016

Hi, this is John. I'm doing the free video. Danielle is here. You can say hi if you want. (Danielle: "Hi guys.") And what we're looking at here is, what is this market going to do next?

Today, the markets were selling off. But keep in mind a couple of things here. First of all, the Dow has not broken this uptrend. And this is a head and shoulders reversal pattern. And interestly enough, we've got a squeeze. So it could launch us through here.

You might say, "John, look at this. This is horrible. You've got to short this." I can't argue with that, except I'm looking at the skew. The idea with the skew is that when it's up here, the perception amongst professional investors is that the risk of a drop is high, and they're usually right. Okay, you can see this. But when it's down here, there won't be a sell-off, and we rally. Well, we are down here, and institutional investors are saying, "We do not see any risk of a major decline here." You've been watching the skew? (Danielle:"Yes.")

So, it just makes me very, very hesitant to be on the short side. At the same time, I don't want to buy crap like this. It's just getting pounded to the downside. So what do we do? I avoid the indexes in favor of individual stocks, because individual stocks give you a little more bang for the buck. I am actually favoring indexes here.

The idea of buying some call options on the diamonds? I'm not looking for a bottom. Just get to back to $167 or so. Then looking at stocks that can benefit from that. I'm not too interested in the Amazons of the world, but we are seeing some oil stocks here benefit from what's been happening. At least, oil's been stabilizing.

So that's the main stuff. We will see what happens tomorrow. As I'm watching the markets after hours, we're getting a little bit of a bid. I'm assuming that after that big lunch-time rally today in the Dow, we're going to be higher tomorrow, get some short covering, and then on Friday we get the employment numbers, and it's anybody's guess. But in the premium video, I'll cover bonds and all that kind of stuff. At this point, I don't trust this market to the downside, and I don't want a lot of short exposure. I hope it helps! Have a good one. We'll see you at the next update.

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