Smart investors buy protection...smartly
One could be excused for the incredulity of the title - after all S&P is back into new high territory, breadth is better - hardly the stuff of tough narratives. BUT (isn’t there always one), when the leader can’t lead, can the troops sustain?
Nasdaq’s inability to break high ground, and the continued under-performance (vs. SPX) are significant not only for Nasdaq itself, but implications for the broader market given the c40% weighting of tech in the broad market index.
Is it all doom and gloom - not yet - while Nasdaq 100 remains contained in a down channel, a break below 27200-500 (660-680 on QQQ) is needed to calibrate to a larger downtrend.
Insurance is best bought when not needed - rather than await a swoon, the rally since late July and lower volatility support a case for locking in gains through relatively inexpensive protection (3-month 92% Put on QQQ costs 1.9%). Smart protection (Long Put + Call Credit Spread) can be executed for a net credit (max downside 3.8%; Upside sacrifice 4.2%) - when the going gets tough, the smart buy protection, smartly!
Nasdaq 100 - Retreats back into Down Channel
source: Trading View
Nasdaq vs. S&P - Significant Underperformance
source: Trading View
Protection Scenarios
source: Lighthouse Canton, Keenai
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