Archive for month: January, 2022

The recent Fed comments should have helped settle the global market expectations related to if and when the Fed will start raising rates and/or taking further steps to curb inflation trends. Additionally, the Fed has been telegraphing its intentions very clearly over the past few months, providing ample time for traders and investors to alter their approach to pending monetary tightening actions. Read the full Fed Statement here.

In my opinion, foreign markets are more likely to see increased risks and declining price trends for two reasons. First, at-risk nations/borrowers struggle to reduce debt levels. Second, foreign market traders/investors struggle to adapt to the transition away from speculative “growth” trends. I think the US Dollar may continue to show strength over the next 4+ months as the foreign traders pile into US economic strength while the Fed initiates their tightening actions. So it makes sense to me that global markets would recoil from Fed tightening while debt-heavy corporations/nations seek relief from rising debt obligations.

Foreign Markets Struggle For Support Before US Fed Monetary Tightening

In a continuing downward slide, global market equity indexes continue to move lower after the US Fed comments this week. In this article, I wrote about this dynamic on August 3, 2021: US Markets Stall Near End Of July As Global Markets Retreat – Are We Ready For An August Surprise? At that time, I suggested the US markets were stalling while the global markets continued to decline.

Now, nearly five months later, we’ve seen the US market trend moderately higher, attempting to struggle to new highs and exhibit deep downward price trends, while the global markets have continued to trend lower. As we move closer to the US Fed pushing interest rates higher, I expect these trends to become even more volatile and pronounced.

US Equities May Find Support After The Fed Raises Rates

The current dynamic in the global markets is that capital is seeking investments where safety and profitable returns dominate over risks. As the global markets transition ahead of the Fed rate increases, I believe the US markets will continue to dominate global assets in opportunities, safety, and returns. Once the Fed starts to raise interest rates, a brief period of volatility throughout the global markets may occur. Still, that volatility should quickly settle as traders chase a stronger US Dollar, US Dollar-based Dividends, and a potential “melt-up” of the US Equity market (particularly the Dow Jones, S&P500, and possibly the Russell 2000).

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Unless the US Fed takes very aggressive action in raising rates too quickly, I believe, at least initially, the US equity markets will continue to benefit from perceived strengths compared to many global equities/indexes.

This means there will be many opportunities for traders and investors in 2022 and 2023 – we have to be patient in waiting for the chance to profit from these big trends. Jumping ahead of this volatility could be dangerous if you are on the wrong side of the price trend. Instead, wait for the right opportunities while you protect your capital from extreme risks. Let the markets tell you when opportunities are perfect – don’t try to force a trade to happen.

On December 28, 2021, I published this research article showing how my Adaptive Dynamic Learning (ADL) Predictive Modeling system expects price to trend in 2022 and early 2023: Predictive Modeling Suggests 710 Rally In SPY And QQQ Before April 2022. I strongly suggest taking a look at the recent downside price trends in relation to the lower range of the ADL Predictive Modeling expectations. If my ADL Predictive Modeling system is accurate, we may see a relatively strong recovery in the US stock market throughout the rest of 2022 and beyond.

Strategies To Help You Protect And Grow Your Wealth

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Many companies regularly distribute a portion of their profits in the form of a dividend to attract investors and incentivize them to remain long-term shareholders. But most companies, ETFs, and commodities don’t pay a dividend at all. When there’s no dividend, the only opportunity for income or a profit comes from a capital gain (or loss) from selling the position.

Wouldn’t it be nice to get regular payouts from “no dividend” investments? As a dividend, these payouts could be used for income. Or, if left invested, our cost-basis could be further reduced with every payout.

A Commodity ETF Example

While the strategy presented here can work on any stock or ETF that has options, it works best with relatively lower-priced products under about $25. A commodity ETF such as SLV – currently trading around $22 a share — is an ideal candidate.

Like gold, silver has historically been used as a physical store of wealth and a hedge against inflation. But long-term charts on gold and silver show that these products often go sideways for a long time before having a significant move. Historically such investments have required buying, holding, and waiting – sometimes for a very long time.

One way to compensate for the lack of a dividend on silver is to purchase shares of SLV and write Call options against those shares.  This is a relatively simple options strategy of writing “Covered Calls”.   

Two Ways to Open the Trade

We want to buy low and sell high by purchasing shares on weakness and selling Calls on strength. We can also sell Puts on weakness as an alternative to purchasing shares. The Profit and Loss graph of selling a Put is the same as for selling a Covered Call.

If we sell Puts, we’ll likely have shares “Put” to us at some point and will then own the shares at the strike price we sold minus the premiums collected. Having shares put to us at a reduced cost basis is part of the plan. When we sell an Out-of-the-Money (OTM) Put, we’re methodically nudging the statistics in our favor by “buying low” when there is a pull-back in the underlying. We can alternately think of selling a Put as a Limit Order to buy shares with the limit price equal to the strike price we sold.

When shares are “Put” to us, we then sell Calls against the shares we now own. And the cost (or basis) of the shares we purchased will have been reduced by the cumulative option premium collected by selling Puts.

Trade Management

We may not have a great opportunity to sell option premium in every possible cycle. There will likely be times where the underlying will be in a pullback, and we may want to wait for the price to recover before selling Calls. Actual expiration cycle outcomes are likely to be a mix of having Calls expire worthless in some cycles and having shares called away in other cycles.

Writing Covered Calls is a relatively low-maintenance strategy that doesn’t have to be watched continuously. Once we write Calls, the shares will either be called away or not. But we do have to be patient and let time decay in the options we sold work for us.

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If the Calls we sold expire worthless, we still own the shares. In this case, we sell Calls again for some future expiration cycle and collect more option premium.

If our Calls expire In-the-Money (ITM), the Calls will be exercised, and the shares will be called away. The shares are purchased by our counterparty at the strike price we sold, and we no longer own the shares. As the Call seller, we keep the premium and any gain on the shares. In this case, we start the process again by buying shares or selling Puts.

Upside and Downside Risks

Writing Covered Calls (and selling Puts) is a neutral to bullish strategy. There can be sustained downtrends, price shocks, and changes in volatility that can affect strategy performance. As with any strategy, it’s important to ask and understand “What could possibly go wrong?” before getting involved.

There’s always a tradeoff when selling Covered Calls. In exchange for collecting option premium, profit is limited to the amount of premium collected plus any appreciation in shares up to the strike price. For that reason, I tend to sell Out-of-the-Money (OTM) Calls.

Keeping probability in our favor and letting time decay work for us are benefits of selling a Covered Call (or Put). As option sellers, we don’t need large up moves to make a profit. We have the statistical odds in our favor and option time decay working for us. The underlying share price can go up, sideways, or even down a bit, and we can still profit. The “Synthetic Dividend” is one of my favorite ways to generate repeatable profits.

What Else Is There To Know About Options Trading?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to subscribe, click here:  TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

The timing of the super-cycle in commodities and the incredible speculative rally in the US & Global markets over the past 4+ years is hard to ignore. Even though these rallies are exciting and profitable when everything seems to be skyrocketing, traders need to continue focusing on the broader market cycles.

The next 5+ years could be very interesting for global traders and investors. Not only are major cycles aligning to present a potentially large global market price rotation, but global central banks have also played a major role in supercharging the speculative bobble phase of nearly all global assets over the past 10+ years. These events are unique because the planet has not seen anything like this in more than 85+ years.

Today, we will explore how these cycles align and how traders should prepare to profit from the potentially broad market cycles over the next 10+ years.

Follow Consumers When Attempting To Understand Market Psychology

Consumer and trader psychology plays a massive role in the speed and amplitude of these major market cycles. Optimism drives significant risk-taking and the desire to share in the profit-taking of major market rallies. Fear and uncertainty usually shock people into a period of inaction—panic and pessimism shift traders into a process of protectionism and a move to safety.

We are currently still in the Euphoria Phase of the market trend. We are starting to see some fear and uncertainty move into trader psychology, but we have not yet seen a roll-over in price to qualify as the Complacency Phase. What this means is that we may still have more opportunities for a continued price rally soon.

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I’ve often shared my belief that people need to be keenly aware of their surroundings and what is happening worldwide. Simply paying attention to how friends spend their time and money and how businesses are operating can lead to a better understanding of the local economy. For example, watching to see if commercial properties are suddenly filling with new shops or becoming vacant at a faster pace can tell you quite a bit about the local and regional economy.

Open your eyes and talk to people around your home town. Please pay attention to the global economic factors and ask questions about how people feel or how their business is doing. Sometimes, it is really that simple.

The 9~10 Year Appreciation/Depreciation Cycle Phase – And The Excess Transition Phase

I remember how the economy shifted before the DOT COM bubble burst and ahead of the 2008-09 housing market crash. Suddenly, the local economy and psychology shifted from optimism into fear, shock, and uncertainty. Many people I talked to were not aware of the broad market cycles that continue to drive market sentiment, but they were aware of the potential crisis that was building around them.

My research into various cycle phases suggests that a 9~10 year Appreciation/Depreciation cycle may be a key factor in understanding various cycle trends and lengths. I’ve also identified an 18 to 30-month transitional phase, which I call the “Excess Phase,” that takes place near the beginning of new Appreciation/Depreciation cycle phases.

The major Appreciation/Depreciation cycle phase usually drives price advance or decline periods. The Excess Phase, the transitional 18 to 30 month period when one cycle ends and another begins, usually reflects a very opportunistic and profitable extreme cycle process. This is often when extreme volatility in market trends can produce very large price trends and sudden price rotations.

Global Market May Shift Into The Depreciation Cycle Suddenly In The Future

Shortly after the COVID-19 crisis in February 2020, I published an article related to the expectations of a “transitory inflation” trend. My research suggested the US markets would rally after the COVID-19 bottom, then peak and roll over into a diminishing cycle amplitude-phase – possibly lasting many years.

Although my research suggested this peak in cycle amplitude was likely in early 2021, it appears the markets pushed the expansion cycle phase higher throughout most of 2021 and suddenly shifted expectations near the end of 2021. Now, in early 2022, it appears we are shifting direction much faster than many traders expected. Yet, I will warn you that we have not broken into a broad market downtrend at this time. Instead, we still see the initial shift away from the Euphoria phase (possibly).

I’ve shared many articles on the shifting global market cycles and how they would create incredible opportunities for traders over the next 10+ years. Let’s take a minute to review these past research articles:

• July 29, 2021: THE INADVERTENT DEBT INFLATION TRAP – IS IT TIME TO FACE THE MUSIC?
• June 15, 2021: WHAT DOES THE FED MEAN BY “TRANSITORY INFLATION” AND WHY IS IT IMPORTANT TO UNDERSTAND?
• December 15, 2020: LONG TERM GOLD US DOLLAR CYCLES SHOW BIG TRENDS FOR METALS – PART 2

25+ Months Into An Excess Phase – What Next?

Currently, we’re starting to see some shock in the markets, with the US major indexes rolling downward after the US Fed indicated tightening and rate increases are likely in 2022. My research suggested the transition from an Appreciation cycle into a Depreciation cycle took place in December 2019 – nearly 25 months ago. Additionally, over the past 25+ months, the market trends have resulted in a massive Excess Phase rally – likely prompted by the COVID crisis and a huge speculative wave by consumers/investors. What next?

At this point, it is a little too early to determine if this is a market peak or if the US markets continue to rally higher – attempting to establish a new higher peak in this Excess Phase Rally. Yet, one thing is certain; we are starting to see some real fear in consumers and traders due to the diminishing expectations related to the US Economic growth rates and the US Fed.

Traders should keep these broad market cycles near the front of their thinking as they attempt to navigate the trends over the next 12+ months. I believe 2022 could see another rally higher, possibly resulting in the SPY moving above $500 before finally reaching a peak price level. After that peak is reached, I believe the US market will roll over into the Complacency phase and transition into the Anxiety/Denial phase fairly quickly.

How To Position Yourself For What May Come

These huge market cycle phases and trends will present incredible opportunities for traders. Learning how to prepare for these big cycle phases and profit from them should be near the top of the list for anyone with money in the markets right now. In my opinion, waiting to prepare for these shifting trends only creates great risks for investors/traders as the Excess Phase Peak appears to be nearing an end.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Chris Vermeulen sits down with Patrick Vierra from Silver Bullion TV to go over the signs that point to further correction in the silver and precious metals market in general. Looking at the daily chart of silver and recent price actions, we can see these critical major turning points sometimes acting as a resistance short term but usually trading above them. On a short-term basis, silver is at resistance and really needs to start to break to the upside.

In general, the precious metals markets are primed and ready to have a very big move. The markets are still trying to base at a really critical point. Chris also mentions that gold and silver minors are at a major support level trying to get some traction and whichever way these break is going to be a pretty big move.

TO LEARN MORE ABOUT THE FUTURE MOVES GOLD AND SILVER – WATCH THE VIDEO BELOW

GET CHRIS VERMEULEN’S ETF TRADE SIGNALS and charts by visiting:
WWW.THETECHNICALTRADERS.COM

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

Few things are certain in life.  But as the old saying goes, there is nothing quite so certain as “death and taxes”.  As an Options Trader, I would enthusiastically add option time decay to that list.  

Options offer traders and investors more leverage and risk mitigation than just purchasing shares outright. For example, if I were to purchase 100 shares of a stock at $100 per share, my total capital outlay would be $10,000. Options give us the right to buy or sell at a certain price for a pre-determined length of time. I could control that same 100 shares by purchasing an At-the-Money call with a $100 strike price with 90 days to expiration for perhaps $6 per share, or $600 total capital outlay. That’s powerful leverage. My downside risk is also limited to the amount I paid for the option, in this example, $6 per share. Compare that to purchasing the stock where my risk is, in theory, as much as $100 per share. (Although they’re relatively rare, “flash crashes” happen, companies can and do go bankrupt, get de-listed, etc.)

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Since options give the holder the right to buy or sell at a specific price for a specific time period, they have a time value component right up until expiration. Included in the price of every option (put or call) is the cost of the time value remaining in the option. In comparison, the holding period for stock can be indefinite, and there is no risk of expiration — only market risk.

Intrinsic and Extrinsic Time Value

The price of an option comprises two parts – intrinsic and extrinsic (time) value. Intrinsic value is simply the difference between the underlying’s market price and the option strike price. Extrinsic value is another term for the value of the time left in an option before it expires. When we buy an option, part or all of what we’re paying for is the option’s time value. The further away the option expires, the more time value will be worth. Prior to expiration, there will always be some time value. But there may or may not be any intrinsic value to an option. Options with no intrinsic value are referred to as Out-of-the-Money (OTM) options.

If you’re an option buyer with the right to buy or sell at a certain strike price, the “bad” news is options have a finite life – they expire. But for every option buyer, there is a counterparty. Option sellers are collecting a premium in exchange for taking on an obligation to either buy or sell shares at a certain price for a specific period of time. For option sellers, expiration marks the end of their commitment – so expiration is “great” news for them.

Time Decay

When we buy options, time decay works against us. For the holder of a long option, the option’s time value will decrease a little day by day as expiration draws closer. As an asset, time value is like an ice cube, melting slowly at first and then rapidly until it has entirely melted away. This is not to say don’t ever be a buyer of options. If we happen to be right about direction, duration, and magnitude, a long put or call option can generate a significant profit.

Option time value is measured by Theta Decay and is commonly estimated daily by the calculated Theta. Theta is one of the more valuable of the Option “Greeks” to make use of. Essentially all trading platforms for options can be configured to show Theta as part of the Option Chain.

Is it possible for the time value to increase rather than decrease even though the calendar time to expiration is decreasing? Yes, it certainly can. Remember that the price put on time value is variable and determined by market forces. If the underlying stock becomes much more volatile than it had been, then the value for that time can increase, sometimes substantially. If the underlying has been very volatile and becomes less so, then the time value can shrink.

To Sell Or Buy Options?

We can significantly turn the odds in our favor by being the seller of options. In that case, we’re selling any intrinsic value (which would be $0 in the case of an Out-of-the-Money option) along with some portion of time value. Intrinsic value will go up or down with the price of the underlying. But in the end, as expiration gets close, the remaining time value will always approach $0 regardless of volatility. That we can literally “take to the bank.”

There’s a well-known quote from Warren Buffett – “If you don’t find a way to make money while you sleep, you will work until you die.”. Buffett is also famous for being a seller — not a buyer — of option premium. Like Mr. Buffett, I too like to make money while I sleep.

WANT TO LEARN MORE ABOUT OUR OPTIONS TRADING SERVICE?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to subscribe, click here:  TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com