Record Highs On Trade Deal
After a rough 2 ½ year fight with cancer, Mr. Seifert passed away on December 7, 2019. We will miss him dearly. The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
| Investors were cautious to start the week, ahead of a slew of meetings on interest rates and trade. The major averages broke out of their doldrums on Wednesday however, after the December FOMC Meeting concluded with the Federal Reserve leaving interest rates unchanged. Stocks rallied on dovish comments from Fed Chair Jerome Powell citing overall inflation running below 2%, a strong jobs market and rising economic activity. Yields nudged higher on the report and the US dollar lower, giving a boost to commodities. The major averages surged to new record highs on Thursday after the US and China signaled that a ‘phase 1’ trade deal was completed and held onto the gains to close out the week, despite some uncertainty coming out on the details of the agreement on Friday. Led by a +4.2% spike in the Philadelphia Semiconductor Index (SOX), Technology (XLK) led the advance, followed by Financials (XLF), Consumer Discretionary (XLY) and Energy (XLE). REITs (XLRE) and Communication Services (XLC) lagged, the latter on weakness in shares of Facebook (FB). For the period, the DJIA added 120.32 points (+0.4%) and settled at 28135.38. The S&P 500 gained 22.89 points (+0.7%) ending at 3168.80. The NASDAQ jumped 78.35 points (+0.9%) finishing at 8734.88, while the small cap Russell 2000 finished higher for a third straight week rising 4.14 points (+0.3%) and closed at 1637.98.
Market Outlook:The technical condition of the market improved last week, and the underlying trend remained bullish. Momentum, as measured by the 14-day RSI, is positive and the underlying technical indicators are bullish. In addition, MACD ST, which measures the short-term trend of the market, crossed into bullish ground for the different indexes as the period ended. Most of the market sectors punched new highs during the week and only defensive REITs (XLRE) and Utilities (XLU) have a technical Avoid rating by Market Edge. Breadth was also bullish as the NYSE Advance/Decline line, a leading indicator of market direction, hit several new all-time highs. Finally, new 52-week highs expanded during the week showing broader participation in the market rally and on Thursday, the NASDAQ recorded 326 new highs, its largest number since June 2018. Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Presently the CTI is Negative at -3, unchanged from the previous week. The counts for Cycles A, C and D are bullish while the counts for Cycles B and E are bearish. The cycles are expected to stay negative through December. Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. The Momentum Index is Positive at +5, unchanged from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 1679 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also positive at the NASDAQ as the A/D line gained 1298 units while the number of new highs beat the new lows on each day. Finally, the percentage of stocks above their 50-day moving average jumped to 71.1% vs. 64.6% the previous week, while those above their 200-day moving average increased to 67.7% vs. 63.8%. Readings above 70.0% denote an overbought condition, while below 20% is bullish. Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. In addition, we track money flows into and out of Equity Funds and ETFs which as of 12/11/19 shows outflows of $7.1 billion. Currently, the Sentiment Index is Negative at -2, down two notches from the previous week. Calendar of Technical Events:
**The above listed technical events occurred for the DIA on the date indicated. DIA is the ETF for the Dow Jones Industrial Average (DJIA). |
The Market Edge Market Posture: The Market Edge ‘Market Posture’, which has been Bullish since the week ending 09/13/2019 (DJIA 27219.52) is now regarded as Neutral.
| Market Timing Models | Current Reading | Prior Week | Connotation | ||||
| Cyclical Trend Index (CTI): | -3 | -3 | Negative | ||||
| Momentum Index: | 5 | 5 | Positive | ||||
| Sentiment Index: | -2 | 0 | Negative | ||||
| Strength Index – DJIA (DIA): | 63.3 | 67.0 | Positive | ||||
| Strength Index – NASDAQ 100 (QQQ): | 64.3 | 63.7 | Positive | ||||
| Strength Index – S&P 100 (OEX): | 70.1 | 64.2 | Positive | ||||
Ask Mr. Seifert
Question: What is a collar and how does it protect my portfolio?
Answer: A collar can be used in many ways. It is used to avoid paying taxes in this period for a stock position that has a large profit. It can also be used for any purpose where you want to keep the stock and have no market risk. The collar is put in place by selling a call above the current market price of the stock and buying a put below the price. As an example, let’s assume that you own 100 shares of TSLA that you bought last year at $150. The stock is now trading at $300 but you don’t want to sell it. To put the collar in place, you would sell the $305 call and buy the $295 put. They both will have the same amount of premium so whatever you lose in the call you make in the put and vice versa. You have collared the stock and locked in its value at $300. When you want the stock to trade freely again you can either let the options expire if they are both out of the money or you can buy back the collar if one or the other is in the money. In either case you have protected your investment for the time period of the option serial that you selected.
Traders And Investors Results
| ‘Traders’ Results | 21st Century Covered Call Results | ||||||
| Performance Since Week Ending 1/04/19 | Performance Since Week Ending 11/06/17 | ||||||
| S&P 500: | 01/04/19 | 2485.74 | S&P 500: | 11/06/17 | 2591.10 | ||
| S&P 500: | 12/13/19 | 3168.80 | S&P 500: | 12/13/19 | 3168.80 | ||
| S&P 500 Points Gain/Loss: | 683.06 | S&P 500 Points Gain/Loss: | 577.70 | ||||
| S&P 500 % Gain/Loss: | 27.5% | S&P 500 % Gain/Loss: | 22.3% | ||||
| Risk Capital: | $20,000 | Risk Capital: | $100,000 | ||||
| Optionomics Traders $ P/L: | $10,790 | Optionomics Covered Call $ P/L: | $28,336 | ||||
| Optionomics Traders % P/L: | 54.0% | Optionomics Covered Call % P/L: | 28.3% | ||||
| Last Week’s Traders % P/L: | -2.2% | Last Week’s Covered Calls % P/L: | 0.5% | ||||
| Put-Call Hedge Results | The Billionaire Risk Reversal Results | ||||||
| Performance Since Week Ending 1/26/18 | Performance Since Week Ending 04/12/19 | ||||||
| S&P 500: | 01/26/18 | 2872.87 | S&P 500: | 04/12/19 | 2907.41 | ||
| S&P 500: | 12/13/19 | 3168.80 | S&P 500: | 12/13/19 | 3168.80 | ||
| S&P 500 Points Gain/Loss: | 295.93 | S&P 500 Points Gain/Loss: | 261.39 | ||||
| S&P 500 % Gain/Loss: | 10.3% | S&P 500 % Gain/Loss: | 9.0% | ||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||
| Optionomics Put-Call Hedge $ P/L: | $9,060 | Optionomics Billionaire Trade $ P/L: | $2,772 | ||||
| Optionomics Put-Call Hedge % P/L: | 9.1% | Optionomics Billionaire Trade % P/L: | 92.0% | ||||
| Last Week’s Put-Call Hedge % P/L: | 0.7% | Last Week’s Billionaire Trade % P/L: | 0.5% | ||||
FREE Two-Week Trial Subscription And ‘Holiday Special’
The option Trades and Strategies offered by the Optionomics Group are unique in that they all have limited risk while creating great leverage. Our basic Bullish – Bearish Credit Spread Trade lets you control 100 shares of a $200 stock, a $20,000 position for less than $500 or 40:1 leverage. Your maximum risk is always limited and our strategies produce winning trades in three out of four possible outcomes. Check out The Scoreboard on the home page to see our results.
Optionomics let you become the casino whereby you have a mathematical edge that enables you to grind out consistent returns. These strategies are designed to produce good returns over short to intermediate-term time frames in any type of market environment.
Optionomics offers a FREE Two-Week trial to its entire web site with no cost or strings attached. Each of the strategies are explained in a 5-7 page booklet which includes detailed explanations and sample recommendations. You can see how the strategies are performing every week by clicking on The Scoreboard tab on the Home page. During the trial, you can paper trade the various strategies and get a feel for the deal without risking a penny. Simply click on the appropriate tab on the Optionomics’ Home page to access the informative booklets and then sign up for the trail. As a special offer, you can download a FREE copy of my latest book, “Trading Options My Way”. I doubt that you have ever read anything like this.
The ‘Traders’ Subscription Includes The Following:
- The Bullish – Bearish Credit Spread Trade: A basic strategy to trading weekly credit spreads.
- The One Day Wonder Trade: A one day trade with great consistency and upside potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
- The Earnings Season Trade: Potential big movers with little or no downside risk.
The ‘Investors’ Subscription Includes The Following:
- The 21st Century Covered Call Strategy: A modern day alternative to the old fashioned covered call strategy.
- The Low Cost Put-Call Hedge Strategy: Sleep at night knowing your portfolio is protected for little or no cost.
- The Billionaire Risk Reverse Strategy: Big time leverage – small time risk.
Each Monday morning by 11:00 EST, the recommendations for each strategy are posted on the Optionomics’ web site. In addition, the updated results from the previous week are posted on the Optionomics’ Scoreboard. I also have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the trading floors and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to either the Traders or the Investor plans at an introductory special of only $39.95 each per month on a month to month basis with no contract or strings attached. That’s $10.00 off the regular subscription rate ($49.95). If you subscribe to both it is only $64.95 per month. I think you will agree that this is a super offer so give it a try. Go to www.optionomicsgroup.com and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert