Technical analysts continue to pay attention to relevant indicators. If the indicators continue to rise in the next few weeks, a new round of cyclical bull market is more likely to rebound than a bear market. While the recent rise in stocks may be just a bear market rebound, the

Technical analysts continue to pay attention to relevant indicators. If the indicators continue to rise in the next few weeks, a new round of cyclical bull market is more likely to rebound than a bear market. As technology companies released better-than-expected financial reports, Nasdaq led the U.S. stock market higher on Wednesday (August 3), and the latest economic data also improved investor sentiment. As of the close of the day, the Dow Jones Industrial Average rose 1.3%, the S&P 500 rose 1.6%, and the Nasdaq soared 2.6%. Wednesday U.S. stock market rise continued the recent rebound momentum. The Dow rose about 9.8% from the 52-week low hit on June 17, while the S&P 500 and Nasdaq rose 13% and 19% from their mid-June lows, respectively. Some analysts believe that some technical signs show that the rebound of US stocks may herald the end of the bear market in 2022. However, while U.S. stocks have been rising since mid-June, the threats faced have not been eliminated, and many investors are worried that the recent strength of the stock market is a bear trap. Barrons believes that investors can use option strategies to protect their stock portfolios from stock market fluctuations.

The significant improvement in technology indicates a new round of cyclical bull market? While the recent rise in stocks may be just a bear market rebound, the technical improvement so far is more like a new cyclical bull market than a bear market rebound. Technical analysts pay close attention to various indicators that measure the width of the stock market, that is, how many stocks are involved in the rise or fall. Clisod and Nguyen pointed out that the rebound in the stock market after the July 27 press conference of Federal Reserve Chairman Powell triggered two rare "breadth thrust signals: first, since June 2020, the proportion of stocks that hit a 20-day high exceeded 55% for the first time; second, the 10-day up-and-down ratio rose to above 1.9 for the first time since 2021. Two analysts pointed out that although the indicators that measure "width breakthrough" were not often used when they were initially designed, this indicator has been used more and more frequently in the past 13 years as ETF, algorithm trading and other factors are growing. Clisod and Nguyen said these indicators can provide valid signals, but must be used to "trust but verify" when using them. When talking about the recent trend of the stock market, the two analysts pointed out that the two previous rebounds in the stock market rebounded from March and May lows also triggered two other "width breakouts" signals, but the recent widening has increased by a larger margin, which is a noteworthy change. Two analysts found that the three indicators of stocks that are at a 21-day high, a 63-day high and above the 50-day moving average are not only higher than the bear market rebound median, but also higher than the new bull market median. Clisod and Nguyen pointed out that Big Mo Tape, an indicator that measures the proportion of branch sectors in the rise, lies between the bear market rebound median and the new bull market median. They said that overall, the current technical improvement in the stock market is not as good as in 2009, 2011 and 2016, but judging from most width indicators, the momentum is stronger than that of the beginning of several bull markets from the late 1980s to the early 20th century. Two analysts said they will closely monitor the performance of the Big Mo Tape indicator in the future, and if the indicator continues to rise in the coming weeks, it will be "apparently more in line with a cyclical bull market than a bear market rebound" like other technical indicators. Will the "August Sale" come?

There is a saying in the US stock market that "sells in August" is a concern for some investors. 1896 In the 100 years since the birth of the Dow Jones Industrial Average, August was the best month of the year for the index, with an average monthly increase of 1.8%, more than four times its average monthly increase of 0.4%. However, in the 35 years since 1986, August has been the worst month for the average performance of the U.S. stock market, even worse than September (September is often the worst month of the year for U.S. stocks). Since 1986, the Dow Jones Industrial Average fell 0.67% in August, slightly higher than the 0.64% decline in September, while the average gain of 1.05% in other months.The difference between 8 and average returns in other months is very significant, reaching a 95% confidence level from a statistical point of view, which statisticians often use when determining whether a pattern is real. In other words, when the stock market performs well in August, it is much better than other months, and when the stock market performs poorly, it is much worse than other months, which is statistically significant. But Barron's contributor Mark Hulbert pointed out that statistical significance is necessary to conclude that a certain pattern does exist but does not have sufficient conditions for . There is also a reasonable theory to explain first why this pattern occurs. He believes that such a theory does not exist. Helbert pointed out that some investors currently believe that the "August sell-off" model exists for two reasons: First, August is a particularly bad month in the midterm election year (such as this year); second, stock markets performed very poorly during the recession. But Hulbert believes that neither reason is statistically significant from the perspective of traditional statistical significance. Therefore, Hulbert believes that the performance of US stocks in August this year has little to do with the statement of "selling in August".

is worried about the "bear market trap"? Try options strategy

In addition, although US stocks have been rising since mid-June, the threats faced have not been eliminated: first, the Federal Reserve and other central banks are still raising rates on ; second, although the financial reports of important companies so far have performed quite well, the market generally expects analysts to lower their expectations for future performance. Many investors are worried that the recent strength of the stock market may be a bear trap. For investors who are worried about another big drop, Barron's believes that instead of getting lost in various debates about what will happen to the stock market, or acting as if the stock market has bottomed out, it is better to pay attention to your own holdings and risk tolerance and think about how much impact your stock portfolio will have on your life. Barron's Options Steven M. Sears wrote that if you want to keep your portfolio from volatility in stocks, investors can consider using the put-spread collar option strategy, i.e., buying a put option, selling another put option with the same expiration date but with a lower exercise price, and selling a call option. Take the S&P 500 stock portfolio as an example. If consumer spending drops in the future, investors can consider making profits through this strategy. Currently, the price of the exchange-traded fund (ETF) SPDR SP 500 (SPY) is around $414. Investors can consider buying a $375 put option that expires in January next year, selling a $335 put option that expires in January next year, and selling a $460 call option that expires in January next year. If the ETF falls to $335, the value of this strategy will increase, and sells call option to offset the cost of this strategy; but if the ETF rises (for example, because the Fed rate hike does not put the economy into recession), the value of the call option in the strategy will increase, and in this case, the operation of selling call options to finance this strategy will fail. The credit spread of this strategy in is about $1.10, and if the ETF is priced at $335 on the expiration date, the maximum value of the strategy is $41.10. The ETF has been priced between $362.17 and $479.98 in the past 52 weeks. From now until January next year, investors will have to go through another financial report season, three Fed interest rate meetings, , Congressional midterm elections, and some economic data will be released during this period. These are key factors that determine whether the US economy will fall into recession or whether the worst period has passed. Sears wrote that it is precisely for this reason that the above options strategy is highly valued by many investors, especially those who need higher returns through stocks and may not be able to afford to recover from serious losses. article | Chinese version writer of "Barrons" Guo Liqun Copyright Statement: Original article from "Barronschina" (barronschina) may not be reproduced without permission. (The content of this article is for reference only, and investment advice does not represent the tendency of "Barron's"; the market is risky, so investment must be cautious.)