Steady Income Investments

By Jeff Bishop – WeeklyMoneyMultiplier.com

Stocks are raging higher today… and trying to finish out the week on a positive note. Despite weak retail sales numbers and jobless claims on Thursday.

The market seems to be striding higher on hope…

Hope that we’ll reach a trade deal with China that doesn’t hurt the economy… hope that the government can get its act together… And hope that Brexit doesn’t cause contagion.

I’m closely sifting through economic data, studying market volatility, and other big-idea catalysts.

Now, I don’t trade earnings much. But when I do… it has to be worth it. Check out these crash puts in XPO, that brought back 500% overnight!!

While I do have other positions on, some bearish (TLT calls, QQQ puts)…and some bullish (UNG calls). I’m probably going to lay low for the rest of the day. After all, its hard to top a 500% option winner.

For example, one options trading frequently asked question (FAQ) that keeps popping up is:

How do you recover from trading losses?

Some traders focus too much on their PnL (profits and losses). So much so, that they make decisions based on it. This is the wrong approach. Instead, focus on your process. That is, identify your setups, know the catalyst, and be able to pick levels for your entry and exit.

By focusing on your game plan, you’re less likely to get distracted by PnL swings. Don’t grade yourself by PnL…rather… grade your decision making.

Furthermore, don’t worry about making your losses back right away. This can lead to revenge trading and even bigger losses.

Some of the best minds on Wall Street are in their 60s, 70s, and 80s. In other words, you have time to make the losses back. Try to learn and improve when you study past trades. Not every trade is going to be a winner…but if you study them…you’re bound to learn something that can help you the next time.

Options Trading FAQs

If you don’t already know, my money-multiplying strategy involves specificity. That means I’m only getting into a stock when I see my setup. You see, I only trade specific stocks and exchange-traded funds (ETFs) and use both company-specific and macroeconomic (macro) variables for idea generation. Moreover, I focus on my money-multiplying pattern.

Now, here are two options trading FAQs I’ve also been getting asked a lot:

1. How do I find ideas?
2. Can you explain in more detail what exactly your money pattern is?

Well, I can’t tell you how to find ideas… but I can show you my idea-generation process.

How to Find Trade Ideas

For the most part, I created a watchlist of upcoming macro variables that could move the market, as well as an earnings calendar. For example, here’s a look at the macro variables and earnings calendar from the last weekend.

Now, what I can tell you is the fact that focusing on a basket of stocks is a lot easier than watching 8,000 stocks. I’m not knocking scanners like Finviz – it works for a lot of people… but I like to do my due diligence and let Weekly Money Multiplier clients know about my next moves.

If you’re asking yourself, “How do I find trade ideas?”

It’s simple…

Build a list of stocks to narrow your focus. Maybe your edge lies in the technology sector… You can look at names like Amazon.com Inc. (NFLX), Netflix (NFLX), Alphabet (GOOGL), Microsoft (MSFT), and the technology ETF – PowerShares QQQ Trust (QQQ).

You see, when you focus on a list of stocks, say 10 to 20 names, it allows you to focus and understand what goes on in those companies and the sector.

For me, I’ll trade ETFs like iShares 20+ Year Treasury Bond ETF (TLT) and stocks like AMZN. However, more specifically, I will use options to gain exposures to these names. So maybe I notice the economic calendar, and see that the Federal Open Market Committee (FOMC) has a meeting announcement and will comment on monetary policy… I’ll look for an options position in TLT.

For example, there was a disconnect between the bond market and the stock market. Generally, if you see stocks rise, bonds will fall… On the other hand, when traders and investors are taking risk off the table… you’ll tend to see bonds rise.

However, we’ve seen both the stock market and the bond market remain strong. My idea: bonds could continue higher given all of the potential negative catalysts. Well, I was specific with my entry and remained patient with TLT focusing on my money pattern, and I was able to generate these profits:

Hint – I used the money pattern to signal I should be buying calls in TLT.

Additionally, I will look at corporate earnings and company specifics, and combine that with the money pattern… just as I did with the XPO Logistics (XPO) trade.

Now, don’t worry, I’m not going to leave you hanging… and not teach you about the money pattern.

This brings us to the next most frequently asked question (FAQ): Can you explain in more detail what exactly your money pattern is?

Moving Average Crossover (Money Pattern) Explained

Let’s look at how XPO trade in detail.

This was good for a 500%+ gain…

If you don’t already know, the beauty of options allows me to take minimal risk, and multiply my money at the same time.

For example, check out this hourly chart on XPO Logistics.

Now, I don’t usually trade earnings, but when I do, I trade relatively small in relation to my account size. For beginners, I don’t suggest buying options into earnings… unless you could really afford to lose all of that money.

Here was my thinking in XPO:

• The stock broke below the 200-hourly moving average, and that’s the new resistance area. It’s tried to break back above three times, but no cigar. That signaled to me the stock was weak.
• The blue line – 13-hourly simple moving average (SMA) – looked like it was going to cross below the red line (30-hourly SMA). When this happens, it lets me know there could be bearish trading in the name. Consequently, it made sense to buy puts in the name.
• The options market was implying a 9.70% move in XPO during its earnings week, as noted in Your Jump on the Week – Macro Risks and Volatility. This stock has moved significantly more than the options market anticipated before, and I figure it could do the same this earnings report.

Here’s a look at the hourly chart today:

Now, generally, I would wait for this pattern to actually show up… but I knew I couldn’t let this trade go away. So I bought put options ahead of earnings, anticipating for this bearish crossover (also known as the money pattern). The stock fell more than the options market expected – crashing more than 20% at one point.

Keep in mind, the money pattern isn’t only for bearish bets. If the blue line (13-hourly SMA) crosses above the red line (30-hourly SMA) in any of the stocks and ETFs on my list, I’ll be ready to buy call options, if I have an idea in them.

Source: WeeklyMoneyMultiplier.com | Original Link

By Jeff Bishop – WeeklyMoneyMultiplier.com

Compromise. It’s what every happy and healthy relationship needs. And stocks look stronger today because of it.

So what’s changed over the last 24 hours?

• Lawmakers have reached a temporary deal to prevent the government from shutting down (it looks like the Wall might end up being a fence when its all said and done).
• U.S. Trade Rep. Robert Lighthizer will be in Beijing on Thursday with the goal of striking a trade deal with the Chinese. Asian markets closed higher in hopes a compromise can be met.

Now, if you don’t know, I study macroeconomics, market volatility, and other big-picture catalysts… because that’s how the smart-money trades. And as you can see, it’s politics pushing stocks higher today.

But you know what’s catching my eye right now?

• VIX (the market’s fear index) is down and might hit a 13 or 14 handle for the first time since October.
• Smart money still isn’t chasing this equity rally.

How do I know?

All you have to do is look at the bond market. Despite a strong rally, bonds aren’t really flinching…

…if it was really “risk-on” wouldn’t you dump bonds and buy stocks? That’s what the smart-money would do…except…they are not doing it now.

Potential Bear Market in the Cards?

It wasn’t too long ago we witnessed U.S. stocks reach bear market territory. If you don’t already know, a bear market is marked by a 20% decline within a set period, typically a little over a month or more.

Now, the markets have since rebounded and have investors euphoric… However, there are some factors that could stuff this move higher.

Despite the stock market having its best January in three decades, the smart money has remained cautious… cutting their long positions and placing bearish bets, thinking the market could crash.

Now, to start February, you would think the smart money would be following the trend, right?

Wrong.

Hedge funds have actually had their lowest net exposure since January 2018. In other words, they have more short positions than long positions and have been on the defensive. It’s quite clear they’re expecting a slew of potential risks on the table…

Risks that Could Cause a Bear Market

• The Eurozone is a mess. There are less than two months to go until Brexit becomes official. However, the U.K. hasn’t approved a final deal with the European Union. We’re going to get some more clues this Thursday when the British parliament holds a debate on Brexit.
• The markets are still ignoring the U.S. – China trade talks and have been too complacent. Even though U.S. trade representative Lighthizer will be in China to try to strike a deal… smart money is expecting the March 1, 2019 deadline to be pushed. They’re thinking the tariffs on $200B in Chinese imports would not be raised to 25% – despite the President of the U.S. (POTUS) threatening to do just that.
• The CBOE Volatility Index (VIX) has been crashing. Generally, when volatility is selling off with a slew of potential negative catalysts on the table… there’s a higher chance the stock market could sell off.
• Some traders think the Federal Open Market Committee (FOMC) could hold the stock market up with its dovish tone. However, you can see all the risks on the table, and I think these all outweigh the Fed’s decision to raise rates.
• Bond exchange-traded funds (ETFs) have been strong. But what’s this tell us? Well, there’s a pink elephant in the room – if the stock market was actually strong, why is the iShares 20+ Year Treasury Bond ETF (TLT) still so strong? You see, when stocks are strong, bonds tend to be weak. However, we’re seeing both markets trending higher, signaling there could be a crash on the way.

Could SPY Reverse Its Trend?

For those who were long into this move, that’s awesome… but how would you position for a head fake?

Well, check out the daily chart in the SPDR S&P 500 ETF (SPY).

If you notice, SPY has actually tried to break out and stay above this area before… However, it’s pulled back and tested or broke below the $260 level. With all these negative catalysts on the table, I don’t think a correction is out of the question.

You might look to buying put options on SPY at these levels if you see a clear indication of a potential reversal. Now, if you don’t know anything about options trading, make sure to get up to speed by reading this guide.

The Disconnect Between TLT and SPY

Now, if you want to go on the defensive, TLT might be another play… again, you need to understand options, macroeconomics, bonds, and technical indicators before you go out slinging TLT options.

Here was my trade in TLT recently.

Just by understanding options, key macroeconomic variables, and the money pattern… I was able to generate these profits:

Now, just like the smart money thinks… it doesn’t make sense to chase stocks or ETFs… so if you really want to hedge your portfolio, wait for pullbacks and patterns to arise.

Here’s what TLT is doing now…

Now, I’m looking for this to reach $123, but I’ve already taken half of my position off the table… so it’s a freeroll for me.

What am I looking at this week?

• Consumer Price Index at 8:30 AM ET and Treasury Budget at 2:00 PM ET on Wednesday.
• U.S. Trade Rep. Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to hold trade talks Thursday and Friday.
• Brexit debate on Thursday.
• Jobless claims, PPI-FD, Retail Sales at 8:30 AM ET; Business Inventories at 10:00 AM ET, Fed Balance Sheet at 4:30 PM ET.
• Industrial Production at 9:15 AM ET and Consumer Sentiment at 10:00 AM ET on Friday.

Source: WeeklyMoneyMultiplier.com | Original Link