In this video, after last week’s sharp market rally, Mary Ellen breaks down where the markets stand now, which leading sectors are showing the most strength, and how to recognize if your stocks are entering a new uptrend. Get expert insights on market leadership, sector rotation, and key signals to watch as momentum builds in specific areas of the market. This is a must-watch for investors looking to stay on top of current stock trends and spot early breakout opportunities.

This video originally premiered April 25, 2025. You can watch it on our dedicated page for Mary Ellen’s videos.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

After weeks of uncertainty, the stock market finally gave us something to smile about. The major indexes just wrapped up four straight days of gains, and optimism is starting to creep back in. Could this be the shift we’ve been waiting for?

Let’s break it down.

The big concerns this week were all about tariffs and the potential removal of Fed Chairman Jerome Powell. But markets breathed a sigh of relief when it looked like tensions might ease between the two largest global economies. Plus, Powell staying put at the Fed helped calm some nerves.

In short, the fear factor took a breather, and the bulls took charge.

What Are the Charts Telling Us?

The S&P 500 ($SPX) crossed above the key 5500 level. This isn’t just any number; it’s a major line in the sand. It represents the March low and, if you go further back on the daily chart below, it has been a support and resistance level for previous price action. The purple horizontal line marks the 5,500 level.

FIGURE 1. SIGNS OF A TURNAROUND? The S&P 500 closed above the key 5,500 level, a major breakthrough. Breadth indicators are suggesting expanding bullish participation. Chart source: StockCharts.com. For educational purposes.

Even better, market breadth is improving.

• The Bullish Percent Index (BPI) for the S&P 500 is at 65% — a solidly bullish reading.
• The Advance-Decline Line is trending higher.
• The percentage of S&P 500 stocks trading above their 200-day moving average is beginning to display increasing bullish participation.

We are also seeing strength across the board:

• BPI readings for the Nasdaq 100, S&P 100, S&P 500, and Dow Industrials are all above 50%.
• 10 of the 11 S&P 500 sectors have BPIs above 50%, with Consumer Staples being the only one with a BPI below 50. This is surprising since it was one of the only sectors above 50% not long ago.

Sector Watch: Who’s Leading?

If you’re looking for clues about the market’s next big move, watch sector rotation. Right now, leadership is coming from:

• Technology
• Consumer Discretionary
• Communication Services

These are your classic “risk-on” sectors—if they’re leading, that’s typically a bullish sign.

What About Bonds, Gold, and the Dollar?

Some of the big-picture trends are starting to stabilize, too:

• Bond yields are dipping, which is helping bond prices recover.
• Gold pulled back after hitting new highs.
• The U.S. dollar is showing signs of strength again.
• And the $VIX—Wall Street’s fear gauge—is finally back below 30.

All small signs, but they add up.

Indicator of the Week: The Zweig Breadth Thrust

One indicator all technical analysts should take note of is the Zweig Breadth Thrust indicator.  It’s a rare signal that flashes when market breadth shifts quickly from bearish to bullish.

The indicator is the 10-day exponential moving average (EMA) of net NYSE advances. The NYSE Breadth Thrust signal fires when the indicator moves from below 0.40 to above 0.615 in 10 days.

The weekly chart below shows that this is the third time the Zweig Breadth Thrust signal was fired in the last five years. The last two times this occurred were in 2023, when the NYSE recovered after dipping below its 40- and 150-week simple moving average (SMA). This time, the index bounced off its 150-week SMA.

FIGURE 2. ZWEIG BREADTH THRUST FIRES A REVERSAL SIGNAL. Previous signals have been followed by bullish moves in the NYSE. Will we see a similar scenario this time? Chart source: StockCharts.com. For educational purposes.The Zweig Breadth Thrust is a bullish reversal signal. Note that each time the signal was fired, the market moved higher. It doesn’t guarantee a bull run, but it’s a green flag.

What’s Coming Next Week?

If this weren’t a headline-driven market, I would be more confident about the possibility of the market moving higher. Next week is packed with potential market-moving headlines.

• Big Tech earnings
• Q1 GDP
• PCE Inflation data (the Fed’s favorite inflation gauge)
• ISM Manufacturing
• Non-Farm Payrolls

At the Close

The underlying market conditions are improving and some key signals are flashing green. But, as noted, it’s still a headline-driven market, and that means all the more reason to stay alert. Focus on leading sectors, watch for confirmation in breadth, and keep your investment plan tight.

End-of-Week Wrap-Up

• S&P 500 up 4.59% on the week, at 5525.21, Dow Jones Industrial Average up 2.48% on the week at 40,113.50; Nasdaq Composite up 6.73% on the week at 17,382.94.
• $VIX down 16.22% on the week, closing at 24.84.
• Best performing sector for the week: Technology
• Worst performing sector for the week: Consumer Staples
• Top 5 Large Cap SCTR stocks: Palantir Technologies, Inc. (PLTR); Rocket Lab USA, Inc. (RKLB); Robinhood Markets, Inc. (HOOD); Rubrik, Inc. (RBRK); MicroStrategy, Inc. (MSTR)

On the Radar Next Week

• Earnings season continues with Meta (META), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and others reporting
• March JOLTs Job Openings
• Q1 GDP Growth Rate
• March PCE
• April ISM Manufacturing
• April Non-Farm Payrolls

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your personal and financial situation, or without consulting a financial professional.

The S&P 500 index managed to log one of its strongest weeks in 2025.  Short-term breadth conditions have improved, and the crucial 5500 level has now been broken to the upside.  Are we in the later stages of a countertrend rally, or just in the early innings of a broader recovery for stocks?  Let’s review three key charts together and evaluate the evidence.

Trendline Break Suggests Further Short-Term Strength

My daily chart of the S&P 500 has featured a thick pink trendline since March, when a lower peak around 5800 provided a perfect opportunity to define the downtrend phase.  With the quick reversal off the early April low around 4850, the SPX has finally broken back above this trendline.

To be clear, after a breakout of this magnitude, I’m always looking for confirmation from the following day.  Will additional buyers come in to push this chart even further to the upside?  Assuming that’s the case, then I’m immediately drawn to a confluence of resistance in the 5750-5850 range.

The 200-day moving average is currently sitting right around the late March peak, and both of those levels line up well with a price gap back in November 2024.  If the S&P 500 can finally break above that resistance range, I would expect much further upside for risk assets.

Breadth Conditions Confirm Short-Term Market Strength

One of the biggest improvements I’ve seen coming out of the early April low is the upgrade in short-term breadth conditions.  The McClellan Oscillator has broken back above the zero level, most days this week saw more advancers than decliners, and the Bullish Percent Index has definitely improved.

In the bottom panel, we can see that the S&P 500 Bullish Percent Index has risen from a low just above 10% at the April low to finish this week at 64%.  That confirms that over half of the S&P 500 members generated a point & figure buy signal in the month of April!

But the middle panel shows the real challenge here, in that long-term measures of breadth are still clearly in the bearish range.  Only 35% of the S&P 500 stocks are above their 200-day moving average, similar to the S&P 500 and Nasdaq 100.  Only if this indicator can push above the 50% level does the S&P 500 stand a real chance of sustainable gains above 5750.

The Stoplight Technique Lays Out a Clear Playbook

I love to overlay a “stoplight” visualization on a chart like this, helping me clarify how I’ll think about risk depending on where the S&P 500 sits at any given point.  

I would argue that a confirmed break above resistance at 5500 brings the S&P 500 chart into the “neutral” bucket.  In this way, we’re respecting the fact that a rally from 4850 to 5500 is a fairly impressive feat, but also acknowledges that the SPX remains below its most important long-term trend barometer, the 200-day moving average.

If we see further gains in the weeks to come, the SPX may indeed push into the bullish range, which for me would mean a push above 5750-5800.  In that scenario, the S&P 500 would be clear of its 200-day moving average, and I would feel much more comfortable adding risk to the portfolio.  Until and unless we see that upside follow-through, I’ll remain comfortably defensive.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

In this video, Grayson highlights the crucial 5,500 level on the S&P 500 using our “Tactical Timing” chart. He then demonstrates two of the easiest methods for identifying the strongest stocks within key indexes like the S&P 500, NASDAQ 100 and Dow Industrials. He’ll show you how to find leading stocks that are moving higher using the New Highs feature of the Market Summary dashboard. From there, Grayson explores the Index Members page, and explains how to sort by SCTR rankings to quickly pinpoint the strongest stocks within any major index.

This video originally premiered on April 25, 2024. Click on the above image to watch on our dedicated Grayson Roze page on StockCharts TV.

You can view previously recorded videos from Grayson at this link.

This week will be the biggest week of earnings season and yes, all eyes will be on the heavy-hitters: META, AMZN, MSFT, and AAPL. These names dominate headlines, and their charts are practically seared into our brains.

But let’s look at some solid companies that might fly under the radar but deserve some attention.

First Up, Coca-Cola Co. (KO)

KO shares have been a safe haven and steady gainer during these uncertain times. Shares are up over 15.5% year-to-date as the consumer staple giant and Warren Buffett’s favorite stock outperforms the overall market.

However, coming into this week’s earnings release, momentum seems to be fizzling out. Shares of rival PepsiCo. (PEP) missed the mark and traded lower. The biggest component of the Consumer Staples Select Sector SPDR ETF (XLP), Procter & Gamble (PG), also fell after mixed results.

Last week, investors shifted back into Technology and Consumer Discretionary and away from Consumer Staples. Shares of KO also fell as a result and now sit at an interesting level heading into its earnings release.

FIGURE 1. DAILY CHART OF COCA COLA CO. Note the saucer pattern.

Technically, shares had formed one of my favorite reversal patterns over the last year—a saucer bottom. This saucer bottom did not resolve to the upside and got faked out on “Liberation Day”. That drop quickly reversed as shares again tried to break out from this pattern. Yet again, they are struggling to do so as momentum wanes.

The safe trade in KO has lost momentum on each rally, as seen in the lower highs of its relative strength index (RSI). This bearish divergence is cause for concern as price hits a crossroads into earnings.

The upside move may be limited for now, and shares could retreat to between $67 and $70. After last quarter’s report, shares broke out to the upside and climbed higher. It will be critical for the bulls to see shares stay above $71/$72 for a continuation of this recent run.

For now, the stock has fallen flat, and if the rotation back into tech continues, it may take time for KO to take another leg higher.

Next Up, Visa, Inc. (V)

V has been another outperformer relative to its sector and the overall market. Shares are up 6.1% year-to-date and 22% over the last 52 weeks.

What should investors watch for in Tuesday’s report? Consumer spending, especially in travel and dining—areas where Visa often sees the most activity. Have investors changed their tune given tariff uncertainty and potential price swings, or have they rushed to spend due to any potential increases?

FIGURE 2. DAILY CHART OF VISA, INC. The stock is holding key support level but is making lower highs.

Technically, we are looking at a two-year daily chart to show the longer-term uptrend. That helps us put the recent weakness in perspective. Shares have declined 17% from their peak, but the sell-off was mostly orderly and took shares back to their rising 200-day moving average.

Shares were able to hold that key support area but have consistently made lower highs since its February peak. It also sits at its 50-day moving average, which is also starting to turn over. So things are at a near-term crossroads.

Clearly, earnings will be the catalyst to help shares make their next move. The moving average convergence/divergence (MACD) has triggered a buy signal and reached its lowest levels in two years. That is a positive development and could lead to an upswing that breaks the recent trend and gets shares back on a path to new highs.

Last, But Not Least, Intercontinental Exchange Group (ICE)

ICE, the parent company of the NYSE, has benefited from market volatility and expanding trading volumes. Shares are up 6.1% year-to-date and over 21% over the last 52-weeks.

FIGURE 3. DAILY CHART OF ICE. The stock price may face some headwinds, but a break above $167 will be positive for the stock.

Shares had been on a tear before mid-March. Then the market turned and took ICE shares with it. However, the sell-off took shares to critical technical levels where they held. The stock closed under its 200-day moving average for six days on its last trip below the level. Ironically, it did the same thing in early January and then rallied.

Now that the big test of the long-term uptrend was successful again, we head into earnings hoping it can build from this level. A risk/reward set-up is quite favorable if we use a level just under the 200-day for a stop loss.

The upside has minor challenges as well, but the path of least resistance looks higher. Any gap or rally over $167 should lead to a momentum surge higher. Its MACD just triggered a buy signal, and a solid earnings report should take shares to their old highs.

Final Thoughts

While the big tech names will dominate the headlines this week, it’s often the lesser-watched stocks that quietly outperform. KO, Visa, and ICE all have compelling stories and interesting technical setups going into earnings. If you’re looking for opportunities beyond the big tech stocks, these could be worth a closer look.

If you’re like most options traders, you’ve probably stared at your watchlist or portfolio and wondered, “What’s the best trade I can make right now?” Well, we’ve got great news: your trading workflow just got a serious upgrade.

Thanks to the latest integration between StockCharts.com and OptionsPlay, the OptionsPlay Strategy Center now lets you scan real-time options strategies directly from your ChartLists. That’s right—your long-term holdings, sector watchlists, or technical scan results can now feed straight into a personalized options engine that does the heavy lifting for you.

Let’s break it all down—how it works, what strategies it supports, and how to squeeze the most juice out of this awesome new feature.

Step-by-Step: How It Works

1. Launch the OptionsPlay Strategy Center. Head over to your Dashboard in StockCharts.com and click the OptionsPlay Strategy Center button (you’ll find it at the top). This kicks off your deep dive into the Trade Ideas and ChartLists.

2. Pick your ChartList from the Dropdown menu. Choose from any of your saved lists. These could be:

• Long-term holdings
• Growth stock watchlist
• Sector-specific lists
• Any list where you want to compare options strategies to find the highest performing options strategies, personalized to your trading and risk preferences.

3. View Real-Time Strategy Rankings

Here’s where the magic happens. For each symbol in your list, OptionsPlay will:

• Evaluate the optimal strategy based on market conditions
• Rank it by Strategy Score, Risk/Reward, and Probability
• Give you the full risk analytics: Max Risk & Reward, Probability of Profit, IV Rank, Earnings Dates, etc.

4. Customize Based on Your Preferences

Want only spreads? Prefer shorter expirations? Looking for bullish setups?

You can customize strategies using the built-in settings:

• Choose your preferred strategy types. Covered calls, credit spreads, debit spreads, etc.
• Adjust your risk tolerance or Days to Expiration (DTE) window.
• Filter for bullish, bearish, or neutral trade setups.

5. Dive Deeper or Trade It

Launch the OptionsPlay Strategy Center in SharpCharts or ACP to explore the trade structure, or export your results to enter them with your broker.

Real-World Use Cases

Income Strategy on Holdings

Got a list of stocks you already own? Use the Strategy Explorer to scan for Covered Calls or Short Puts that offer the best combo of yield and downside protection.

Directional Setups on ChartLists

Have a ChartList generated based on your custom-built scan? Run your technical trade ideas through the Strategy Explorer and identify the highest-yielding Bullish Debit Spreads or Bearish Credit Spreads, aligned with your technical views.

The OptionsPlay Strategy Center is no longer just a tool for trade ideas—it’s a fully personalized trading engine. Whether you’re a portfolio-focused investor or an active options trader, this feature cuts hours off your research and puts hours of professional-grade options research in front of you.

Ready to Try It?

Launch the OptionsPlay Strategy Center and pick a ChartList to explore personalized strategies on your stocks, in real time.

Subscribe to the OptionsPlay Add-on for StockCharts for just $40/month and find enough income to cover your first few months on your first covered call!

When I consider the equity markets from a macro perspective, I begin with the analysis of the price of the S&P 500.  Then I use breadth indicators to confirm what I’m seeing by analyzing price action.  Finally, and still very importantly, I look at market sentiment indicators that speak to how investors are feeling about the markets at any given moment.

While we’ve experienced a significant rally off the early April lows, my review of key sentiment indicators will show that there is definitely not rampant optimism these days.  To the contrary, most signals appear to be similar to early stage bearish phases.  Let’s review the evidence together.

AAII Survey Shows Notable Lack of Bulls

The American Association of Individual Investors (AAII) conducts a weekly survey of members, asking if they are bullish, bearish, or neutral about equities.  The latest weekly data from this poll shows 22% bullish and 56% bearish, with a 34% spread between the two buckets.

In the weeks following the February 2024 market peak, the AAII bullish reading plunged from about 45% to 20% and has remained around that level ever since.  Bearish readings have been in the 55-60% range during the last eight weeks, and the spread between bulls and bears has been fairly consistent.

Despite many calls for optimism on the recent bounce in our major equity benchmarks, the AAII survey is suggesting that individual investors remain quite skeptical about further upside at this point.  And if you look back to 2022, you’ll see that this survey can remain in this general range for quite some time during protracted bear phases.

NAAIM Exposure Index Indicates Defensive Positioning

Now let’s look at two more sentiment indicators, starting with the NAAIM Exposure Index.  As I discussed in a recent podcast interview with the President of NAAIM, the National Association of Active Investment Managers, this is an organization of money managers who are asked about their exposure to the equity markets every week.

The latest results of that survey show an average allocation around 41%, down from just over 90% at the February market peak.  So while I’ve heard rumblings of institutional investors piling into risk assets off the April low, this survey would suggest that there is still plenty of capital patiently waiting on the sidelines.  And while the current reading at 41% is well below average, we’ve seen the indicator reach down to single digits during previous bear market cycles.

Rydex Flows Not Yet At Extreme Levels

The bottom panel in that previous chart shows the Rydex fund flows, showing how investors in the Rydex fund family are rotating between offensive and defensive positioning.  This week, we observed a new log for 2025, showing the Rydex fund investors have continued to rotate to more defensive positions off the February market high.

Look further to the left and you’ll see that in 2022, 2020, and late 2018, this indicator reached much deeper levels before a major market bottom was finally achieved.  So while the recent rotation confirms a more cautious outlook for investors, it has not yet reached extreme enough readings to be giving a clear signal of downside capitulation.

In the order of importance, I would put price at the top of the list.  And if the S&P 500 regains its 200-day moving average, I will find it much more difficult to remain bearish about market conditions.  But based on my latest analysis of key market sentiment indicators, the bears may have more time in the sun before this pullback phase is over.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

It’s Wednesday, and markets rose sharply as President Trump walked back his comments on removing Fed Chair Jerome Powell and Treasury Secretary Bessent admitted that the trade war with China may not be sustainable.

Like most investors, you’re probably wondering: Is the market chaos starting to settle down, or am I walking into the jaws of another bear trap?

Short of reliable fundamentals amid an onslaught of unpredictable geopolitical volleys, it’s probably best to examine the technical data. Turning to the Market Summary page, I scrolled down to the Breadth window to see which indices or markets are trading above their 20-day exponential moving average (EMA), as it might reveal which ones are recovering.

NOTE: All Market Summary screenshots were taken on Wednesday at the time of writing.

Breadth Snapshot: A Mixed Signal

FIGURE 1. MARKET SUMMARY BREADTH WINDOW. Are we seeing a recovery here?

You can see that over 45% of stocks in the S&P 500 ($SPX) and the NYSE Composite Index ($NYA) are trading above their 20-day EMA. The NASDAQ Composite ($COMPQ) has an even higher percentage, with over half of its stocks trading above that level.

As the color code indicates, this isn’t bullish. It’s neutral. But are we seeing early signs of a turnaround? If so, you, like most investors, probably want to catch it early. But it may also be a false signal. To get an additional breadth angle, look at the Bullish Percent Index (BPI) window to see how many stocks within the broader market and exchanges generate Point & Figure Buy Signals (see below).

Bullish Percent Index: The S&P 500 Leads the Pack

FIGURE 2. MARKET SUMMARY BPI. The S&P 500 is the most bullish among the indices and exchange groups.

The NASDAQ has the most bearish reading, but the tech-heavy Nasdaq 100 is just a few points away from bullish. The S&P 500 is flashing the most bullish signal, with 60% of stocks in the index signaling P&F buy alerts.

So far, the outlook seems cautiously optimistic at best — we might be climbing out of the woods. But to get a fuller picture, it helps to examine another set of critical angles: market sentiment and money flows.

• Can we get a data-driven measurement of investor bullishness vs. bearishness?
• And just as important, how does that sentiment translate into actual money movement? Are investors, especially institutions, putting capital into the markets or pulling it out?

To answer these, let’s analyze the AAII Bulls – Bears sentiment indicator alongside a weekly chart of the S&P 500. Let’s also apply the Chaikin Money Flow (CMF) indicator to provide a longer-term view of buying and selling pressure in the market.

This chart is available on the Market Summary Sentiment window. However, I modified this weekly chart a bit, and you can see this below.

Sentiment Check: Bearish Underpinnings

FIGURE 3. WEEKLY CHART OF THE S&P FEATURING THE AAII BULLS – BEARS INDICATOR. Subtracting the bullish from bearish forecasts, you get net negative sentiment.

A couple of foreboding signs: the S&P is well below its 40-week simple moving average (the equivalent of a 200-day moving average), and the net AAII Bull-Bear sentiment (bottom end of the indicator pair) reads net bearish.

As for the first, you’re aware of the saying that nothing good happens under the 200-day moving average. Just look at the S&P 500’s price action in 2022. Is the current market about to undergo a similarly prolonged period of volatile declines?

As for the second sign, the AAII Bulls-Bears, it’s overwhelmingly bearish. Here’s something to think about: this indicator is based on a weekly sentiment survey of its members. While the group has around 160,000 member investors, the weekly responses usually fall between 100 and 350. It’s a voluntary survey, so the participation rate can vary quite a bit, often skewing the results. Still, it’s a closely watched barometer of retail sentiment.

Money Flow: Caution at the Zero Line

Aside from sentiment, what does the longer-term money flow picture look like?

Take a look at the CMF indicator plotted below the chart. The blue circle highlights the CMF hovering right at the zero line.

On a weekly scale, this suggests that buying pressure has cooled, but the CMF hasn’t crossed into clear-cut selling pressure territory yet. That raises the question: Is this a pause before a rebound, or a warning of more downside to come?

The CMF doesn’t distinguish retail from institutional capital. However, institutional investors operate on longer timeframes. Given the current geopolitical uncertainty, what we’re seeing may reflect a pause or outright indecision. Either way, it’s likely some catalyst will eventually trigger a move, and when it does, any institutional response could last for weeks, if not longer.

Euphoria or Exhaustion?

Despite the April rallies, markets seem to be reacting more to political theater than fundamentals. Vague remarks from officials like Treasury Secretary Bessent have fueled optimism, yet there’s little real progress on trade or economic policy to back it up. With corporate layoffs rising, port activity collapsing, and U.S. reliance on Chinese imports deepening, the structural cracks appear to be widening.

Meanwhile, markets dance to headlines — often without substance — as if investors are being nudged along by said headlines. Is this euphoria? If it is, this euphoria may not signal strength but rather a dangerous calm before a deeper decline. 

At the Close: Tread Carefully!

The Market Summary offers a clear starting point for gauging the surface and penetrating beyond it. By watching key indicators like breadth, sentiment, and money flow, you can better assess whether we’re seeing the start of a true recovery or just another bear trap. Stay cautious. Don’t trade on news, but analyze how markets react to news. In other words, follow the data and wait for real evidence before leaning into any rally.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

When the stock market is turbulent, it makes sense to hedge some of your valuable equity positions. One way to do it is through options. 

The adage “Don’t keep all your eggs in one basket” is well-known among investors. While a diversified portfolio reduces your risk, you probably have a handful of favorite stocks that you don’t want to sell. But watching those stocks lose value can be painful.

The good news: There is a way to reduce your losses on those positions.

Hedging With Options

Before diving into the strategies, you need to determine what you want to do with the stocks you want to hold on to. When a market is trending lower, options help protect your investments in the following ways:

• Protecting your stocks against losses.
• Generating income from declining stock values. 
• Realizing profits from declining stocks if the stock moves in your favor.

Before proceeding further, look at all your portfolio holdings and determine which stocks you want to hold on to, then determine your hedging objectives.

This article will focus on the strategies you can implement to protect your stocks against losses. You can do this by buying puts, which are similar to an insurance policy. You pay for downside protection to gain unlimited upside potential.

Here’s how it works.

1. You buy one put contract for 100 shares of an underlying stock. For example, if you own 100 shares of Apple, Inc. (AAPL), you buy one AAPL put contract; if you own 200 shares of AAPL, you could buy 2 put contracts.
2. You buy a put with a strike price that could generate a profit that you’re comfortable with on your equity position, and a premium (the price of the contract) that you’re willing to pay to protect your position.
3. If the stock’s price falls below the strike price, you could sell your put contract for a profit.  You could also choose to exercise your put contract, i.e., selling the underlying shares at the contract’s strike price.

For example, say you bought 100 shares of AAPL for $110 per share. AAPL stock is trading slightly below $205 but hit a high of $259.81. You want to protect your unrealized gains in case the price falls further. Looking at the daily chart of AAPL below, further downside looks highly probable.

The 50-day simple moving average (SMA) has crossed below the 200-day, the StockCharts Technical Rank (SCTR) score is at 32.50, which is relatively low, and the relative strength index (RSI) just below 50, indicating neutral momentum.

FIGURE 1. DAILY CHART OF AAPL STOCK. A declining trend, a technically weak chart, and lukewarm momentum indicate a higher probability of further decline.Chart source: StockCharts.com. For educational purposes.

If you were to buy a put, what strike price and expiration would you choose? That can be a time-consuming exercise, but the OptionsPlay Add-on in StockCharts does it for you quickly. Here’s how.

• Below the chart, click the Options menu, found under Tools & Resources. You’ll see the Options Chain by default (Options Summary).
• Click the OptionsPlay button above the Options Chain to access the OptionsPlay Explorer. You’ll see the three optimal strategies listed.

FIGURE 2. OPTIMAL OPTIONS STRATEGIES FOR AAPL STOCK. You could sell 100 shares of AAPL, buy a put, or buy a put vertical spread. You can analyze the three scenarios and determine which one will help protect your equity position.Image source: StockCharts.com. For educational purposes.

The recommended long put (displayed in the middle) is the June 20 $205 put, which will cost $1,170. You have to decide if it’s worth paying this much premium to protect your position in the stock. If the stock price rises above $205 by expiration, your contract will expire worthless. You would have lost $1,170. Are you willing to take that risk?

You can modify the strategy by changing the expiration and strike price of the contract. This will help determine if there are more favorable risk-to-reward scenarios. The following scenarios could play out:

Scenario 1: The stock price falls below $205.

• You could sell the put option for a profit, which will offset some of the unrealized losses from the decline in the stock’s price.
• You could also choose to exercise the option and sell the shares for $205. You would walk away with a profit of $8,330 ($9,500 – 1,170).

Scenario 2: The stock price is above $205 by expiration.

• Your put contract will expire worthless.
• If you think the stock price will drop as contract expiration gets close, you could roll it to a further-out expiration. You’d sell your $205 June put and purchase another put option with a later expiration.

When buying puts, your maximum risk is limited to what you pay for the premium.

There’s More You Can Do

The strategy on the right shows a put vertical strategy, which has a much lower cost, a higher OptionsPlay score, and a potential reward of $2,145, which is much lower than buying a put.

The put vertical involves adding a lower strike price put with the same expiration. This would be a two-leg options trade—you buy the June 20 205 put and sell the June 20 $175 put.

The benefit of the put vertical is that you limit your risk to $855 (the debit). This will happen if  AAPL is above $205 and both puts expire worthless.

Your potential reward is limited to $2,145 (strike price – debit), which you will realize if AAPL’s stock price falls below $175. The probability of profit of the put vertical is 41.79%, versus 37.48% for the long put.

The Bottom Line

Buying puts and put vertical spreads can protect your options positions in a declining market. You still need to evaluate the cost of protection versus your profit potential, just as you would when you’re shopping for insurance.

The benefit of using the OptionsPlay Add-on is that the legwork is done for you. All you have to do is evaluate the different strategies, which are spelled out for you in simple terms. To learn more about the features available in the OptionsPlay Add-on, visit the StockCharts TV OptionsPlay with Tony Zhang YouTube channel.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your personal and financial situation or without consulting a financial professional.

In this video, Joe highlights key technical setups in select country ETFs that are showing strength right now. He analyzes monthly and weekly MACD, ADX, and RSI trends that are signaling momentum shifts. Joe also reviews the critical level to watch on the S&P 500 (SPX), while breaking down important patterns in the QQQ, IWM, and Bitcoin. As always, he finishes with analysis on your most-requested stocks, applying his trusted multi-timeframe approach.

The video premiered on April 23, 2025. Click this link to watch on Joe’s dedicated page.

Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.