Weekly newsletter of MYstylework - Issue #73
1% CRAZY
1% CRAZY....
I came across this phrase from one of my trainers and it is really a fact that only 1% of the people are willing to do things different from the common to achieve significant success.
The fact that, 99% of the wealth of the world is controlled by 1% of the people also makes this "1% crazy" really true if you think about it. Not that they are "crazy" people but really people with the right mindset and willing to put time and effort to do the things required of them to achieve success.
These people are not born with the tools, mindset or knowledge to make it in the world, they also learn and accumulate experience along their way, putting sweat and tears day in day out until they achieve success. Perseverance is also key as there are many obstacles and challenges along their journey.
Are you up to join this "1% Crazy"?
If you are reading and learning this newsletter every week and put into practice what you learnt, you are already in this "1% Crazy People Club".... Congratulations!
"The road to success comes through hardwork, determination and sacrifice"
SPX - 4130
We were on mark last week, risk on till end Tuesday and rally up when the Fed hiked 75 bps on Wednesday. SPX closed at the high side of the range and now is sitting on the 100 MA. The last 2 weeks, SPX had moved higher by 11% which is quite a good run. The last time we experienced this kind of run-up was last March after the 1st rate hike.
So where are we going next? Short term bear rally or doing a reversal out of the bear market or downtrend?
Well, based on last Thursday's announcement, the US is in a confirmed technical recession after it posted 2 consecutive GDP contraction, 0.9% this quarter and 1.6% in the last quarter. But does the market really cares? It does care but not when the news breaks up, in fact it reflects the economy months in advance. Remember we were talking about recession way back in December/January and the market spiraled down, SPX around 25% and NDX around 34%, which is around six to seven months.
The forward current expectation is that the last 2 rate hikes of 75 bps each is the top rates that the Fed will take and the next months would likely see a lower hike. The next decision will be made on 20/21 September, and as usual the developments of economy data in the next 1.5 months will lead to that decision. Based on June/July data, crude has retraced from 120+ to around 90+, this would probably run down inflation a bit for August reporting which is positive. Other than that, the Russian-Ukraine war proves that the world cannot live in prolonged sanctions if it is in reliant on certain commodities, so things are going to ease despite accusations of aggression etc to Russia. On the other side, China has not come out of its lockdown policy and is going to still stay low for the rest of 2nd half. So based on this, things are not as bad as it seems and market is likely be bullish until new data sets in. Corporate earnings seems not as bad as everyone feared as the forward warnings are all now overachieved. This week, we expect to see another strings of key earnings reporting like:-
1 Aug - PINS, ATVI (AMC)
2 Aug - UBER, MAR CAT (BMO) AMD, PYPL, ABNB (AMC)
3 Aug - CVS, UA, YUM (BMO), FTNT, MARA (AMC)
4 Aug - BABA, LLLY (BMO), TWLO, SQ (AMC)
5 Aug - WD (AMC)
Last week, we did 2 directional earnings trade, GOOGL and INTC, both exited with nice profits, 86% for GOOGL and 127% for INTC, both using call spreads DTE 19 Aug.
This week keep an eye on Monday's price action, futures opened red, but we expect that a minor pullback during the day before going higher for the week. Stochastic is overbought, so need to release some tension before going back up.
NDX - 12947
NDX closed 441 points up (+4.5%). Recent rally past 2 weeks is +18%, which is slightly more than half of the decline to ATL. NDX is now out of the bear of -20% which is a good indication. This spurs again from the interest hike expectation for the next months which is lower than the current 75 bps.
The 20 MA has already crossed above 50 MA which indicates a short term reversal. AMZN, GOOGL, AAPL, MSFT & TSLA are all aligned to bring NDX up based on the last earnings reporting.
Next major psychological level is 14,000 and this week, we expect the range to be at 12,300 to 13,500.
RIDING THE CYCLES - DIAGONALS
When the market dipped during the year, many great fundamentally strong stocks had also declined 30-40%. Despite that, these companies still reported strong earnings but just lost in value along with the overall market decline. In such situation, these are undervalued stocks and would be a potential buy in. However, as overall market is still bearish, putting in cash to buy the stocks would still be a risky affair.
To avoid, situations of low becoming lower, we can capitalise on the wave cycles of the stock/market to get good returns by entering into neutral to slightly bullish trade strategies. Even when the price decrease, we still generate income when holding a position waiting for price of stock to recover.
We use this strategy options called Diagonal. 2 legged trade, one longer term ITM Call expiry (90 days or more, Delta 80+/-) and another OTM short call, near term expiry (can be weekly or upto a month expiry). The objective is for the short calls to expire worthless, more than the decay in the longer dated call. We continue to roll the short calls on expiry until remaining 30 days expiry for the longer dated call or if the price action is no longer feasible (continued down with no sign of recovery).
We covered Diagonal in our past Newsletter Issue # 62, 16 May 2022 and also Traders Talk below. As shown in our AMZN live trade below, Diagonals are a much better investment strategy than property investment. Low Capital Requirement and if used correctly returns of 10% per month can be achieved. Property investment via rental yields, nowdays if lucky 3% per annum and if not probably negative as interest is rising. Also high capital outlay via cash or even loan liability. Watch Traders Talk below to understand again.
DIAGONAL ON AMAZON
Entry Date - 8 June 2022 - Entry price 22.58
AMZN Price @ entry $122
Total premium collected in between - $5.57
Exit Price - $22.79
AMZN Price @ Exit ~ $135
Total gain = $5.78
Total days in trade = 52 days (exited earlier as AMZN price significantly breached the short call strike and price action very bullish post earnings + market is also very bullish)
ROI = 25.6% (179.6% per annum)
TRADERS TALK
We are back after 2 weeks vacation and bringing you more valuable contents. Let more of your friends know about our show and let them benefit also. View Past Traders Talk here.
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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.