My gut’s been talking lately—and it’s telling me that the odds of a market pullback are on the rise.
After a string of strong sessions, it’s only natural that the market might need to catch its breath. But it’s not just that. If we do head back toward the recent lows, I don’t expect it to be quiet. There will be noise. A lot of noise.
Some voices will shout that we’re “retesting the lows”—a technical inevitability, they’ll argue. Others will pound the table that this whole bounce was nothing more than a dead cat bounce, and that the real drop is just beginning.
I’ve got my own hunch about how this might play out—something I discussed on this morning’s Options Jam Session (watch below). But regardless of how far we pull back, I’m increasingly focused on one specific area of the market: housing stocks.
If things get slippery from here, I think the housing sector is particularly vulnerable. That vulnerability could come from multiple angles: rising rates, shifting consumer sentiment, or simply relative underperformance catching up with absolute price.
And if we do get a meaningful pullback in the broader market—or even just continued chop and sector rotation—I think bearish trades in select housing stocks could offer outsized returns.
Even more interesting: depending on how the trades are structured, they might still pay out even if housing names continue to just grind lower or lag behind.
Options give us tools to define risk and lean into probability. And right now, my probabilities tell me that betting against housing, with the right setup, is a play worth considering. Here's a trade on this theme I put on today.
Stay nimble out there. There’s noise coming. And sometimes, the best trades come not from what’s loudest—but from what’s quietly breaking down beneath the surface.
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Sean McLaughlin | Chief Options Strategist, All Star Charts
