Are the Markets In Better Shape Since Last Friday?

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Are the markets in better shape since last Friday?

Steve Sosnick, chief strategist for Interactive Brokers, thinks so.

He gives investors his reasoning, explains why he doesn't want to call a bottom and says that he's done a little nibbling this week.

Watch the full video above for more.

Video Transcript:

Go bear, go. We're seeing a second day of a market rally. So just how long can it last? Well, joining me today to break it down is Steve Sosnick, Chief Strategist at Interactive Brokers. Steve, is the hope around the stimulus package enough to keep this rally afloat?

It should be, at least in the short term, but the devil's going to be in the details. We've always been told don't fight the Fed, and the Fed has come out with more than all guns blazing, basically, they've come out with an air force apparently, and Congress appears to be doing what it's doing from the fiscal side. We'll know for real soon enough I suppose when the details come out. When you combine those two things, it certainly seems like we have enough in place, at least in the short term, to give us some support. Whether that holds going forward, whether the Congressional stimulus is a buy the rumor, sell the news move, that becomes a little bit murkier. There's still a lot of unknowns out there, although it is encouraging to see that those whom we rely upon to help us through these situations are doing what they can.

Do you think the market's in better shape than it was last Friday? Do you think that we've hit the market bottom yet, or is that still nowhere to be found?

Let's break it down two ways. I think, first of all, the markets are in better shape since last Friday, largely on technical factors due to expiration. We had a big expiration, a huge amount of open interest that expired on Friday. Bigger than normal because it was very hard to roll positions. Futures traders found it difficult to roll, so there were a lot of expiring futures that normally would have been rolled into the next month. Option traders found it difficult to roll as well, because liquidity conditions were pretty tricky. And the other problem you had was that a lot of expiring options had gamma to them, or extrinsic value, however you want to put it, in strikes that normally would not have. Let's say $10.00 out of the money in spy going two days into expiration, those options had value where in a normal market, they wouldn't. That was because of the extreme volatility we saw.

The good thing about that is that those are now wiped off the books. They don't exist anymore. And with them, we no longer see the haircut and margin constraints that accompanied them. So in that situation, I think we're starting a much healthier footing. Monday's decline was a bit unusual, and maybe that was, maybe that proved to be the buying opportunity. Maybe that proved to be the bottom. I hate to call a bottom. I hate, part of the reason why I'm reluctant to call it the bottom is I actually bought stock from my PA near the close on Monday, and I never hit the bottom. No one ever does. So that probably biases against it, but I do feel that psychologically we should be improving a little bit, at least in the short term.

Steve, thank you so much for taking the time to chat with us today.


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