Clive P. Maund

The risk of a plunge in the markets next week is much higher than it has been for a long time. The trade wars that are already well underway might be a way for governments to extort more money from consumers for a while but they will simply “kick the ball downhill” as far as the weakening global economy is concerned, Central Bank pumping or not. Think of the Covid Scamdemic as Act 1 of a plot to hole the world economy below the water line (which was very successful with much higher inflation resulting and severe supply chain problems) and think of tariffs as Act 2.

US stock markets have been losing upside momentum this year to the point that they are now vulnerable to a more severe drop and market crashes or severe drops often kick off on a Monday after investors have had all weekend to “stew” about their holdings following a worrying drop on the Friday.

It was quite a drop on Friday and it was somewhat ominous that the PPT (Plunge Protection Team) did not show up during the last 60 to 90 minutes of trading to erase part of the drop as they very often do. In the past the Fed has always come riding to the rescue and they did intervene heavily in the bond market on Friday, but it remains to be seen whether they will arrest the drop this time. They may not given the increasingly parlous state of the economy and what we have seen on the longer-term chart…

So rather than leave it until Monday when thousands of investors could be running around like headless chickens, if you are minded to protect your holdings or “have a bit of a flutter (speculation)” on a big drop, it might be an idea to load up on some Puts today, because if markets open on Monday down hard the prices of these Puts will be hiked immediately.

A good vehicle to use for protection is the SPDR S&P500 Index Trust ETF, code SPY, currently at $602.10, and a suggested fairly “near-to-the-money” Put series is the $580 strike March 21st expiring $580 Puts currently priced at $3.37. These SPY Puts are liked for having narrow spreads. This is just a suggestion and you can select any series you like depending on how far you think the market might drop and how much leverage you are looking for (and what assets you need to protect).

Meanwhile, the PM sector “tipped its hand” on Friday by breaking down on high volume from its recent strong intermediate uptrend which implies that, as usual, it will slavishly follow the broad market lower in the event of a selloff…

It may therefore make sense to hedge or step aside some positions with the aim of buying them back later.

End of article. Note that this article is filed under “Traded Options” in the Archive.

Posted at 1.50 pm EST on 21st February 25. Charts added at 9.30 am EST on 22nd and more at 4.40 am EST on the 23rd.