Buying a put makes it so that you will not lose more than your initial investment.
The NASDAQ 100 has pulled back a bit during the course of the trading session on Thursday from all-time highs on Wednesday as we head towards the Jackson Hole meeting. At this point, the market continues to see the Jackson Hole statement as the next significant event, as we await to see what the Federal Reserve is going to do. If they start to taper bond purchases, that could send interest rates higher, which does not necessarily translate to higher prices in the NASDAQ 100. After all, the “growth stocks” continue to go higher in a low interest-rate environment, as there is no yield out there to be had. In other words, bonds are not worth owning.
To the upside, the 15,500 level should continue to offer resistance, just as the uptrend line underneath should offer support, right along with the crucial 15,000 level. I think there would be a lot of buyers in the 15,000 level, and therefore I think at that juncture we would see a lot of buyers jumping into the market to take advantage of a little bit of a pullback. However, if we were to break down below the 50 day EMA, then it is likely that we go looking towards the 14,500 level, possibly even down to the 14,000 level after that.
If we break down below the 50 day EMA, then the market is one that I might be willing to buy puts in but would not be willing to short this market due to the fact that if we get some type of meltdown in the markets, the Federal Reserve will come been in save everyone. Ultimately, it is because of this that you are much better off under most circumstances in mitigating your losses. In other words, buying a put makes it so that you will not lose more than your initial investment.
On the other hand, if Jerome Powell ends up being extraordinarily dovish, then the market could break above the 15,500 level, opening up the possibility to the 16,000 level. At this point in time, it remains a bit of a “buy on the dips” situation from a longer-term standpoint, but we may have gotten a little bit ahead of ourselves heading into this announcement with that, I am looking for an opportunity to get long, but do not see it quite yet.