Traders see ‘extraordinarily low’ chance of further gains

Don't hold your breath for further gains in stocks, which have risen powerfully off their mid-February lows, two traders say.

"The market is pricing in a less than 1 percent probability that we rally 10 percent over the next three months," said Stacey Gilbert, head of derivative strategy at Susquehanna. "This is actually extraordinarily low on a historic level."

Gilbert's calculation of a market-implied 1 percent probability is based on how responsive call option prices are to the market's daily moves (a metric known as delta).

On the other hand, "the downside really isn't being priced in as a high probability" either, Gilbert added Tuesday on CNBC's Trading Nation."

The next move could well come down to corporate results. Earnings season unofficially kicks off when Alcoa reports after the bell on Monday. And if reports fail to improve on last year's Q1 results, this will be the third-straight quarter of weaker S&P 500 earnings, extending the so-called earnings recession.

"We need to see if there's been any growth," Gilbert said. "That is the big thing the market needs."

Some traders see losses from current levels as quite likely.

"We're going to see bouts of real volatility, and we're going to see it drift lower," Max Wolff of Manhattan Venture Partners predicted Tuesday on "Trading Nation."

Wolff said that with the S&P 500 trading at 18 to 19 times earnings, we're currently at the high end of a "very boring range" for the market — and with a low chance that earnings catch up to this relatively high multiple, stocks seem primed to fall.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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