SHUT YOUR DOORS...YOU ARE NOT WELCOME!
Nobody like red days except Michael Burry I guess. It is a painful feeling to see your portfolio goes down or your hard earned trading profits get wiped out. In particular if that happens almost to the end of the year when you want to tally your books and end the year with a whopping return achievement.
This can be the real scenario for many at the moment, whether you are investing or trading. A lot of stocks have had a last minute retracement this year end due to the sudden market pullback arising from fear of the Omicron Covid variant. The excitement for the last push for the portfolios to get higher returns from the Santa Claus rally came to a temporary stop and turned into fear and a give back to the markets.
Well, this is the reality, there is no one way up and the drawdowns can come anytime. How you perform boils down to what type of portfolios you have and how strong is it to withstand the volatility. Just like, if you are vaccinated to be protected from any potential virus invasion and how strong your body is. If you are hit, you may see a temporary pullback and eventually get back to health. You may not get a healthy report card for the December cut off, but for sure the results will carry over to next year. So don't fret too much if you have a good portfolio. The other side is, if your portfolio is filled with speculative stocks, then the recovery may not always come as when fear kicks in, the heaviest selloff will be on these speculative ones.
However, we try to protect ourselves, the imminent will come someday. The countries can shut its doors to unwelcome guest from infected countries, but this little bugger will somehow find its way in. The best way to protect ourselves is to beef up our own immunity and on the investment side, have a strong portfolio of great stocks to bring us back to health.
May we all see some light before the end of the year and still clock in some great returns for 2021... or even better pile in more great stocks for the harvest in 2022!
"Happy trading for the weeks ahead"
MARKET UPDATE
SPX
SPX retraced around 5% from its high but a steep and very volatile one. Market has tried to regain each drop the next very day but overall the fear still win against the dip buyers who is hunting for bargains.
As compared to the retracement in September, the current one is still at its infancy since there are now 2 factors which drives the market sentiment, #1 Covid Omicron and #2 interest rates/tapering. On Omicron we are still uncertain if it will be a serious threat or something which we can pass on fast. But on interest rates, we are clear that the direction is still to hike and taper will be implemented. If Omicron burst, it will fuel a higher downside for the market. If it is clear, we will get back to the Santa Claus rally mode!
Separately, because of the year end, the decision of the funds if they would cut their positions to lock in the year profits is also another thing which watch for. We have seen very volatile movements in some stocks for no apparent or rationale reasons, although everyone tries to link it to Covid Omicron.
NDX
NDX went down 278 points last Friday. Even the strongest of the FAANG, ie. AAPL was broken down last week, coming down from its ATH of 170 to close at 161.84.
The past 4 major retracements in NDX was between 7 to 12%, the highest was in February 2021. The current retracement is still within 8% for now. As like SPX, the potential to go down more is there if the Covid Omicron burst negatively.
We also made a comparison of the FAANG during the last big retracement in September against the current one.
As compared to the previous round where NFLX has been quite resilient, this round AAPL is the one which has held the fort for the FAANG. FB, AMZN and GOOGL retracements are more or less the same as previous. However, we do not know if the retracement of NDX has ended for now.
The other thing to note is post retracement, all the counters went higher than pre September retracement except for Facebook.
CSP PORTFOLIO PERFORMANCE (-10.7%YTD)
(Portfolio performance is on MYstylework's Portfolio and is not a recommendation to buy and for informational purposes only. You are adviced to seek your own professional adviser's views and perform own due diligence when evaluating any stock, options or investment trades)
For the first time this year, the portfolio is down with a negative. The market selloff would have greatly impacted the returns since the past 2 to 3 weeks as the positions are all getting ITM. Notwithstanding that, the next expiry would come in Dec 17, about two weeks to go. The largest impact is on our KWEB position since it has dropped very fast in the last week and the drop further fueled by the decision by Didi to delist in US and relist in Hong Kong. Bear in mind KWEB is invested in China ADRs listed on the US. This news of course sparked fear of similar ADRs will be delisted from the US. But the decision by Didi is because of the pressure from the China government as they apparently went against the government's advice not to list in the US and now facing the repercussion.
The other China ADRs listed on the US has not faced any sanctions by the government apart from it stating that they will continue to scrutinise these VIE listed structures. The selloff of almost 20% of its value is quite harsh.
In any case, we continue to generate between 1-2% premium on current positions and will continue to roll them close to expiry until the position improves.
VIX - VOLATILITY INDEX
VIX is an important measure traders use to judge the market direction. VIX is called the fear index and measures the level of fear market participants have. The higher the fear means that the tendency that the market will go down or is going down more.
The VIX went to 80 during the last Covid Crash in March 2020. VIX spiked to highest 35 last Friday and closed at 30. For the current year trend VIX had hardly went up above 30+ apart from in January and the February/March retracements.
When VIX stays elevated, the market is expected to be volatile and the IV increases. However, elevated VIX does not last very long. People tend to panic immediately on negative news and as they gather more data, they calm down. We also call this panic selling and during this time, VIX will be high and once the commotion is over, VIX will drop. That's why you see sharp jumps in VIX and it comes down also very fast. It's like you are going to a roller coaster when the train nose dive you panic and scream and when the dive is over, you calm down.
Here's a gauge of what VIX levels tend to be and as an investor/trader what do we do about it.
VIX 20 - Normal (Vix has been around 15 average level during normal times)
VIX 30 - Market is nervous. You will see some panic selling starting.
VIX 40 - Market panic even more. Entering market correction.
VIX 50 and above. Market is in full correction. Stocks will be cheap, investors can pile in their favourite stocks and traders can start to line up bullish trades.
With the understanding of VIX and the correlation with how the market and its participants behave, we can make use of this as an indicator to put in our trades/investment buy points.
FREE iPhone 13 Challenge
The latest position is now at a loss of $187 and the price has slightly gone ITM at 161 level. The momentum up for AAPL seems to have ran out and hopefully it will drop down below 160 soon.
Current risk profile of trade. AAPL is trading at 156.81 which is right in between our Iron Condor strikes.
For those who have not registered for the iPhone 13 Challenge, the registration link is here [Register Here]. We will share the trade entries when we do a trade and also explain in detail the executed strategy in a video at the Challenge Members Area.
TRADERS TALK
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We had a great topic and so much insight on trading was given out.
Listen to Traders Talk Series 25 if you have not done so. View Past Traders Talk
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DISCLOSURES
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
MYstyework is an Online Financial Literacy Educator and materials provided is solely by MYstylework and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. MYstylework, through its contents, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. MYstylework is not in the business of transacting securities trades or an investment adviser.
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