How to Trade the January Effect
The Biggest Print of 2021
The first two have to do with my VIX light and something called “The January Effect” – but we’ll get to those later.
First, I’ve got to show you this MASSIVE collar adjustment on the S&P. Because it alone could push the broader market higher this week:
Last week, a trader executed this 153K spread for one of the largest prints of the year – it represents $20 billion in notional value.
Obviously, this isn’t some random rich guy. This is a big hedging strategy run by JPMorgan Chase & Co. (NYSE:JPM) on a quarterly basis.
Every quarter, when this trade executes, it tends to lead to a near-term drop in volatility as traders plan for the trade, just like we’re seeing today.
Typically, after the trade goes up, the market meanders higher.
Combine that with the January Effect, and we’re looking at a potentially strong first week of 2022.
The January Effect
And one of those “past patterns” is known as the January effect.
Stock prices tend to increase in the first month of the year… AKA, the month we’re in RIGHT NOW.
This could be because of people investing their holiday bonuses. Analysts also point to an increase in buying after a tax-inspired sell-off in December as the reason for “The January Effect.”
And this past December saw a bigger sell-off than most, thanks to the rapid spread of Omicron.
So, investors and analysts alike have to wonder…
Will we see a rally this month?
In order to know the true possibilities of the January Effect, we need to do a deeper market dive…
And that’s exactly what I’m doing this week in the Profit Revolution live room.
Get ready to trade to January Effect with me. Click here to learn how YOU can join my daily live trading sessions.
The First VIX Light of 2022
We’re starting 2022 out right – with a RED VIX light and a GREEN market.
The VIX is in a contango. Volatility is dropping, VIX movement is dropping, and the market is meandering higher.
After opening above 18, the VIX has dropped throughout the day. And I think this trend will continue through the rest of the week, with the S&P finally keeping 4,800 – a level it hasn’t quite been able to break and maintain as of yet.
Why I’m Fading Tesla’s 11% Jump
The reason PFE keeps dropping…
And my son’s bullish analysis on DIS for 2022 –
You can get it all right here, in today’s Watchlist!
- Tesla Inc. (Nasdaq:TSLA)
This morning, TSLA reported a record-breaking number of 2021 vehicle deliveries – one that smashed analyst expectations and was 87% higher than last year’s number.
And TSLA opened up 11% on the news.
But I’m not looking to go bullish here. I think there’s an opportunity for a very short-term fade on the pop – and you can do that with a near-dated put.
- Pfizer Inc. (NYSE:PFE)
“Sell the news” continues for PFE, despite the fact that its COVID-19 pill was approved in Europe. The stock is down more than 3.5% today, and I think it’s heading back down to $50 a share. I’d look at the February 18, 2022 $50 puts to play the drop.
- Walt Disney Co. (NYSE:DIS)
DIS continues to solidify above $155, and I think it could be on a trip to $165 per share. I’d look at the January 21, 2022 $160 calls here for a bullish play on DIS.
I’ve got to hand it to my oldest son, Mark Jr., for keeping this stock on my radar. Little Mark joined us in the Profit Revolution trading room at the end of November, where he pitched DIS as a bullish stock for 2022 – and I think his analysis was spot-on!
If you’re interested, you can check out a replay of that session right here:
I’ll be live TOMORROW for my free Profit Takeover show at 12:30 PM ET sharp right here in the main Money Morning LIVE room.
Make sure you tune in if you want to catch my VIX LIGHT READING…
See the BIG MONEY I’m tracking…
And learn how to trade all the stocks on my WATCHLIST.
It’s all happening right here tomorrow at 12:30 PM ET.
See you there,
Mark Sebastian
Founder, Profit Takeover
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January 03 2022
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