Small/Micro-Cap ETFs are the topic of today’s Trader Tip Video by Chris Vermeulen of TheTechnicalTraders.com. Small-cap stocks like the IWM and the Russel 2000 have had a strong rally, basing for a long time, and holding up very well. And now they are really popping and moving up.
Using the Fibonacci extension, we can see the small/micro caps are showing another potential 4% move to the upside. Overall, what is really important is that the small/micro caps tend to lead stock market rallies.
TO LEARN MORE ABOUT THE SMALL/MICRO-CAP ETFs – WATCH THE VIDEO
Subscribers: Please let us know what you would like to learn and we will add it to the roster of our weekly Technical Trader Tips!
Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!
TO EXPLORE THE TOTAL ETF PORTFOLIO, PLEASE VISIT US AT The Technical Traders. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!
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.
https://thegoldandoilguy.com/wp-content/uploads/2021/12/Trader-Tip-1.jpg225400adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-30 07:13:562022-03-30 07:14:00Small/Micro-Cap ETFs – Trader Tip Of The Week Video
The CBOE Volatility Index (VIX) is a real-time index. It is derived from the prices of SPX index options with near-term expiration dates that are utilized to generate a 30-day forward projection of volatility. The VIX allows us to gauge market sentiment or the degree of fear among market participants. As the Volatility Index VIX goes up, fear increases, and as it goes down, fear dissipates.
Commodities and equities are both showing renewed strength on the heels of global interest rate increases. Inflation shows no sign of abating as energy, metals, food products, and housing continues their upward bias.
During the last 18-months, the VIX has been trading between its upper resistance of 36.00 and its lower support of 16.00. As the Volatility Index VIX falls, fear subsides, and money flows back into stocks.
The SPY has enjoyed a sharp rally back up after touching its Fibonacci 1.618% support based on its 2020 Covid price drop. Money has been flowing back into stocks as investors seem to be adapting to the current geopolitical environment and the change in global central bank lending rate policy.
Resistance on the SPY is the early January high near 475, while support remains solidly in place at 414. March marks the 2nd anniversary of the 2020 Covid low that SPY made at 218.26 on March 23, 2020.
SPY – SPDR S&P 500 ETF TRUST – ARCA – DAILY CHART
BERKSHIRE HATHAWAY RECORD-HIGH $538,949!
Berkshire Hathaway is up +20.01% year to date compared to the S&P 500 -4.68%. Berkshire’s Warren Buffet has also been on a shopping spree, and investors seem to be comforted that he is buying stocks again. Buffet reached a deal to buy insurer Alleghany (y) for $11.6 billion and purchased nearly a 15% stake in Occidental Petroleum (OXY), worth $8 billion.
These acquisitions seem to be well-timed as insurers and banks tend to benefit from rising interest rates, and Occidental generates the bulk of its cash flow from the production of crude oil.
As technical traders, we look exclusively at the price action to provide specific clues as to the current trend or a potential change in trend. With that said, Berkshire is a classic example of not fighting the market. As Berkshire continues to make new highs, its’ trend is up!
BRK.A – BERKSHIRE HATHAWAY INC. – NYSE – DAILY CHART
COMMODITY DEMAND REMAINS STRONG
Inflation continues to run at 40-year highs, and it appears that it will take more than one FED rate hike to subdue prices. Since price is King, we definitely want to ride this trend and not fight it. It is always nice to buy on a pullback, but the energy markets at this point appear to be rising exponentially. The XOP ETF gave us some nice buying opportunities earlier at the Fibonacci 0.618% $71.78 and the 0.93% $93.13 of the COVID 2020 range high-low.
Remember, the trend is your friend, as many a trader has gone broke trying to pick or sell a top before its time! Well-established uptrends like the XOP are perfect examples of how utilizing a trailing stop can keep a trader from getting out of the market too soon but still offer protection in case of a sudden trend reversal.
It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and somewhat surprisingly, we entered five new trades last week, four of which have now hit their first profit target levels. Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.
Furthermore, successfully trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.
WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?
Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.
We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Chris Vermeulen Chief Market Strategist Founder of TheTechnicalTraders.com
https://thegoldandoilguy.com/wp-content/uploads/2022/03/SNAG-0000-1.png633948adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-30 07:10:022022-03-30 07:10:12Volatility Retreats As Stocks & Commodities Rally
Welcome to the Technical Traders with David Lyon podcast. The show that brings you technically proven strategies and trade ideas from experts around the world. We’re going to help you make more money with less risk, so you can take your trading to the next level. Now here’s your host. Jim Goddard.
Jim Goddard: 00:00 My guest is David Lyon. He’s the CEO, founder, and managing director of research and trading for E-Algo.com. Welcome to the show, David.
David Lyon: 00:11 Thanks Jim. Glad to be here.
Jim Goddard: 00:13 David, can you just give us a little thumbnail about what exactly you do at E-Algo.com?
David Lyon: 00:19 Well at E-lgo, we look at all the different markets, commodities, stocks, ETFs, and so forth, but we’re really interested in what’s going on with the global money flow in the foreign exchange market. And of course the Forex market does more than $6 trillion a day in daily volume. So it’s really a good indicator as far as what’s going on around the globe. And so I head up the quantitative research and trading, you know, analyzing the markets and putting the traits through and also overseeing all the risk management.
Jim Goddard: 00:59 How did you get started in trading or invest?
David Lyon: 01:03 Well I’ve been doing this for a while. I mean, it’s hard for me to say this, Jim, but I’ve actually been doing this for about 40 years and I got started as a kid. I grew up on a farm in Western Nebraska, a wheat farm and just being involved in the work with that and watching the price of wheat. And then I think when I was five years old, my parents bought me a calf and I started keeping track of the cattle market. You know, every spring I would go to the sale barn and buy calves and in the fall would sell them. And so starting with one calf, when I was five, by the age of 15, I had had grown that up to about 15 head of cattle. And I did the same thing with chickens at an early age; started with a hundred chickens, ended up with 2000 chickens.
David Lyon podcast : 01:53 And so that’s sort of how I got involved in the commodities aspect of things. And then it wasn’t until I was probably about 20 years old. I started looking at the actual markets, you know, precious metals and things of that nature due to a family friend. And so I got started in it, I think my first commodities trading account, I started with $7,000 that I had saved up. And within 90 days or three months, I had tripled that to 21,000. And then I experienced my first Black Swan, which was the Russian grain embargo that came out of nowhere. And my 21,000 went to minus 1000 and that was my first hard lesson in leverage and risk management. And I considered myself fortunate because in that particular brokerage office, I saw a lot of people lose six figures or larger during the Russian grain embargo. So it’s been a process and those are the things that have helped me become what I am today with understanding gaming theory and risk management.
Jim Goddard: 03:02 Is there anybody you really admire or influenced you to become involved in the financial markets?
David Lyon: 03:10 Well, early on, like I say, I had, you know, that first experience was a painful experience. And so after going through that, I said, you know, I think I better learn more. I need to study this more and learn more about what I’m doing before I do this go any further with this. And so just from a common-sense standpoint, I thought, well where would I go to find out this information? And so I started studying reading a lot of books trying to find out all the different traders, you know, that were successful. And so early on in my career, I studied, you know, the mathematician WD Gann. So I I’ve studied Gann’s works, you know, for almost 40 years now. And of course, Elliot wave theory. And then of course, other things along the way, you know, with Bollinger bands and standard deviation really looked a lot at that vibration and [inaudible 00:04:07] and things of that nature.
David Lyon: 04:08 As far as the specific person, one of the things that’s really helped is the books, of course, that Jack Swagger came out with called the market wizards. And my copies are of course just worn out cover to cover. I even have my own version; electronic version of cliff notes of his books. And so in sort of studying all of those different traders, a lot of them have a lot of different styles and techniques. I put that all together, you know, the money management so forth with, you know, [inaudible 00:04:42] Bollinger bands on standard deviation and things of that nature, and just came up with my own style. And even some of the traders going back into the twenties and thirties, like GM Lobe. Is one of the guys I learned a lot from his writings about risk management. And you know, a lot of people talk about diversification. I know GM Lobe always said, Hey, take all your eggs and put ’em in one basket and then keep an eye on that basket because sometimes we can get over diversified. And then if a black Swan or some event hits the market we just don’t have enough time to manage our holdings or make changes. And so I tend to focus specifically on one or two markets at a time. And then that way I can really keep a tight handle on risk.
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Jim Goddard: 05:33 What’s your trading philosophy? What set of principles, beliefs, or experiences drive your decisions?
David Lyon: 05:41 Well, because of living through and trading through many market events you know, like the crash of 1987 and of course more recently the drop that we had in 2007, 2009, and knowing how quickly things can go south. That’s really been the basis for a lot of my trading rules that I have now and the development of those you know, is through experience. And so in my trading that I do for myself and a few friends and family, is I always use a stop. So I always know where I’m gonna get out, reassess things. And then I try to manage my expectations. And so I try not to, you know, obviously this is customizable, but I try not to exceed over an annualized basis, a 10% draw down. And I look to make about a 30 to 40% rate of return because the draw down really has a big impact as far as how fast you can come back and make money.
David Lyon podcast: 06:45 So the shallower, the draw down that you can keep it to the better your chances are of course, to generate a great return for the year. And so in doing that, Jim, what I do is on a trade by trade basis I typically will not risk more than 1% on any particular trade. And many times the risk is actually 0.5% of my portfolio. So I’ve got a proprietary, you know, Excel calculator that I use and I plug in my account balance and you know, my stop loss that I’m going to use and I calculate it out. And that actually gives me my position size then to be able to do that consistent position sizing every time.
Jim Goddard: 07:59 David, what’s your favorite type of analysis or indicator you find helpful when you make your trades or investments?
David Lyon podcast: 08:09 Well I have a lot of different things that I use, but one of the things that I really do like is the Bollinger band. I know it’s a very common indicator, but there’s so much that you can do with it. I mean, you can use multiple bands for instance and you can use on any particular timeframe that you want. So the standard for the Bollinger is a 20 period with a 2.0 standard deviation. But what I do is I take that into different realm based on like I say Gann mathematics and [inaudible 00:08:45] and so forth. And so I, I utilize a Bollinger maybe, you know, like on a daily chart. I might look at you know, instead of setting it on 20 days, I set it on like 60 days, which of course is three months or one quarter.
David Lyon podcast: 09:00 And then instead of using a 2.0 standard deviation, I’ll probably use like a Fibonacci number, like a 1.618 or a 2.618. And then that gives me a pretty good idea where the market is moving up or down, you know, if the trend is a bull or a bear market. And then what I tend to do with that indicator is I will look with my other indicators and other tools that I use I’ll look to, if it’s an up market, I’ll look to buy when the market retraces or goes to the bottom of the band or if it’s a down market, I’ll look for the market to rally up to the bands and then I will sell, you know, short. And so I really like that particular indicator, Jim,
Jim Goddard: 09:44 David, what is something you wish you would’ve known before you started trading and investing?
David Lyon podcast: 09:50 Well? there’s a lot of things about trading and investing that are not in books. And of course a lot of it is personal because what might be best for me may not be necessarily best for you. But I think the thing that applies to all of us is just really understanding the emotional part of the trading and then understanding the risk management. So early on, if there was some way other than having to live the experiences and some of the painful experiences early on, it would’ve been nice to just understand that being a successful investor trader is more than just using an indicator or using a system strategy. That really the biggest part of the battle is just having a system or a plan in place to manage the risk, manage the exposu.re to your portfolio. And then that allows you to control your emotion.
David Lyon podcast: 10:51 Trading, as a friend of mine taught me, you know, trading is all about mathematics and, and it’s not complicated mathematics, but you need to run the math and decide at what level are you, are you satisfied with trading? And so trading can either be as risky as you want it to be, and as exciting as you want it to be, or it can be downright boring depending on what your personality style is. And so you just calculate out the math and that’s something that I learned over time that I could control the process and not let the process control me. And then of course, the other thing I was thinking about too, is that there’s a lot of wisdom, and as they say, keeping your powder dry. So the beautiful thing about the markets too, is that you don’t always have to be doing something every day. There’re many times where it’s actually wise to just keep some of your capital, you know, waiting in the wings for the right opportunity when everything comes together, where you have a high probability trade and then implement that capital. So a lot of what I needed to learn or wish I could have learned earlier was that patience and just how to utilize that, all of those things to my advantage.
Jim Goddard: 12:08 David, thank you so much for chatting with us.
David Lyon podcast: 12:11 Thank you, Jim. I, I enjoy
Jim Goddard: 12:13 My guest has been David Lyon, CEO, founder, and managing director of research and trading for E-Algo.com.
If you found value in our show, subscribe and give us a rating or share it with a friend that would be greatly appreciated as well.
The technical trader’s podcast or an expression of opinion only, and should not be construed as investment advice or recommendations to buy or sell any financial instrument. This information is for general information and educational purposes. Only guests on the show are not compensated for their participation to view our full disclaimer, visit our website: www.TheTechnicalTraders.com
Chris Vermeulen sits down with Patrick Vierra from Silver Bullion TV to review the signs that point to a further correction in gold and silver. Silver had a strong run from very early February – we’ve broken two significant standout highs on the charts. Typically this means we’ve got very strong upward momentum, and now silver is pulling back, starting what looks to be a new trend.
Overall, we are in a cautionary phase for gold, silver, and miners. Everyone piles into precious metals at the same time based on news, and what goes straight up usually comes straight down. We can very easily see gold trade sideways for another year or spark that next big rally when people start piling into gold once more.
TO LEARN MORE ABOUT FURTHER CORRECTIONS IN GOLD AND SILVER – WATCH THE VIDEO
TO EXPLORE THE strategies in the Total ETF Portfolio, PLEASE VISIT US AT The technical traders. You’vE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!
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.
https://thegoldandoilguy.com/wp-content/uploads/2022/03/admin-ajax.jpg300400adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-25 16:17:092022-03-25 16:17:14Has A New Bull Leg For Gold and Silver Begun? Video
Investors and traders alike are concerned about what investments they should make on behalf of their portfolios and retirement accounts. We, at TheTechnicalTraders.com, continue to monitor stocks and commodities closely due to the Russia-Ukraine War, market volatility, surging inflation, and rising interest rates. Several of our subscribers have asked if changes in monitor policy may lead to a recession as higher rates take a bigger bite out of corporate profits.
As technical traders, we look exclusively at the price action to provide specific clues as to the current trend or a potential change in trend. We review our charts for both stocks and commodities to see what we can learn from the most recent price action. Before we dive into that, let’s review the various stages of the market; with special attention given to expansion vs. contraction in a rising interest rate environment which you can see illustrated below.
PAY ATTENTION TO YOUR STOCK PORTFOLIO
We are keeping an especially close eye on the price action of theSPY ETF. The current resistance for the SPY is the 475 top that happened around January 6, 2022. This top was 212.5% of the March 23, 2020, low that was put in at the height of the Covid global pandemic.
The SPY found support in the 410 area at the end of February. If you recall (or didn’t know), 410 was the Fibonacci 1.618 or 161.8% percent of the Covid 2020 price drop. Now, after experiencing a nice rally back, of a little over 50%, we are waiting to see if the rally can continue or if rotation will occur, sending the price back lower.
COMMODITY MARKETS SURGED
The commodity markets experienced a tremendous rally due to fast-rising inflation, especially energy, metals, and food prices.
The GSG ETF price action shows that we recently touched 200%, or the doubling of the April 21, 2020, low. Immediately following, similar to the SPY, the GSCI commodity index promptly sold off only to then find substantial buying support at the Fibonacci 1.618 or 161.8 percent of the starting low price of the bull trend. Resistance for the GSG is at 26, and support is 21.
A STRENGTHENING US DOLLAR
The strengthening US dollar can be attributed to investors seeking a safe haven from geopolitical events, surging inflation, and the Fed beginning to raise rates.
The US Dollar is still considered the primary reserve currency as the greatest portion of forex reserves held by central banks are in dollars. Furthermore, most commodities, including gold and crude oil, are also denominated in dollars.
Consider the following statement from the Bank of International Settlements www.bis.org ‘Triennial Central Bank Survey’ published September 16, 2019: “The US dollar retained its dominant currency status, being on one side of 88% of all trades.” The report also highlighted, “Trading in FX markets reached $6.6 trillion per day in April 2019, up from $5.1 trillion three years earlier.” That’s a lot of dollars traded globally and confirms that we need to stay current on the dollars price action.
Multinational companies are especially keeping a close eye on the dollar as any major shift in global money flows will seriously negatively impact their net profit and subsequent share value.
The following chart by www.finviz.com provides us with a current snapshot of the relative performance of the US dollar vs. major global currencies over the past year:
KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED
It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and somewhat surprisingly, we entered five new trades earlier this week, two of which have now hit their first profit target levels. Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.
WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?
Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.
We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Chris Vermeulen Chief Market Strategist Founder of TheTechnicalTraders.com
https://thegoldandoilguy.com/wp-content/uploads/2022/03/SNAG-0001.png7101031adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-25 16:13:062022-03-25 16:13:15What Will Be The Impact Of Rising Rates On Stocks & Commodities?
In today’s Trader Tip Video, Chris Vermeulen of TheTechnicalTraders.com talks about the Wind Energy ETF FAN. We’ve seen UK Prime Minister Borris Johnson talking to other leaders about nuclear energy and the wind energy industry as a result of the issues with Russia. Clean energy starts to look very attractive as oil prices continue to climb.
FAN has a pretty bullish price action, a pennant formation, and a pretty good upside potential. Using Fibonacci extensions, we are looking at potentially a 2% gain in the next trading sessions.
TO LEARN MORE ABOUT THE WIND ENERGY ETF FAN– WATCH THE VIDEO
Subscribers: Please let us know what you would like to learn and we will add it to the roster of our weekly Technical Trader Tips!
Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!
TO EXPLORE THE TOTAL ETF PORTFOLIO, PLEASE VISIT US AT The Technical Traders. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!
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.
https://thegoldandoilguy.com/wp-content/uploads/2021/12/Trader-Tip-1.jpg225400adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-23 10:20:242022-03-23 10:22:17Wind Energy ETF FAN – Trader Tip Of The Week Video
A subscriber asked us recently where he should be putting his money and how to limit losses in his retirement portfolio. He expressed frustration as he watched Buffett’s Berkshire Hathaway stock going up, but at the same time, the stock indices going lower and many of his previously favored stocks experiencing substantial losses! This conversation naturally piqued our curiosity. We decided to look into this for him and, at the same time, share our findings with our subscribers.
Berkshire Hathaway stock traded at an all-time record high price of $520,654.46. At a stock price of $512,991, Berkshire’s market capitalization is $756.23 billion. Last year, Berkshire generated a record $27.46 billion of operating profit, including gains at Geico car insurance, the BNSF railroad, and Berkshire Hathaway Energy.
BERKSHIRE vs. S&P 500 BENCHMARK
Warren Buffett, age 91 (known as the ‘Sage of Omaha’), is the chairman and CEO of Berkshire Hathaway. He is considered by many to be the most successful stock investor in the world and, according to Forbes Real-Time Billionaire List, has a personal net worth that exceeds $120 billion USD.
Very few can compete with his long-term track record. Since 1965, Berkshire has provided +20% average annual returns, almost double the +10.2% average annual returns for the S&P 500 Stock Index benchmark. The 2022 year-to-date comparison is:
However, according to Buffett’s own humility, he has endured years of underperformance and has had his share of bad stock picks. When Buffet was asked about drawdowns at one of Berkshire’s annual meetings, he stated, “Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market.” According to www.finance.yahoo.com, the five biggest percentage losses for Berkshire have been:
The Buffett Indicator, as dubbed by Berkshire shareholders, is the ratio of the total United States stock market valuations (the Wilshire 5000 stock index) divided by the annual U.S. GDP. The indicator peaked at the beginning of 2022 and remains near all-time highs even though many stocks are well off their record levels.
This historical chart of the Buffett Indicator was created by www.currentmarketvaluation.com. Doing quantitative analysis, we learn that the indicator is more than 1.6 standard deviations above the historical average, which suggests the market is over-valued and, in time, will fall back to its historical average.
Berkshire Hathaway At Fibonacci Resistance!
On March 18, 2022, Berkshire hit an all-time high price of $520,654. The Fibonacci resistance level of 2.618 or 261.8% of the March 23 low of $239,440 is $520,196. As shown on the daily chart, Berkshire also met resistance at the 2.618 standard deviations of the quarterly Bollinger Band.
THE BENCHMARK: S&P 500 SPY ETF
The S&P 500 Index is the industry standard benchmark when comparing investment returns. It’s worth noting that as Berkshire reached the Fibonacci 2.618 resistance, the SPY found support at the Fibonacci 1.618 of the SPY March 23, 2020 low.
Central banks have begun to tighten credit by raising interest rates for the first time since 2018, attempting to bring fast-rising energy, food, and housing prices under control. More time is needed to determine the full impact that rising global interest rates will have on current markets.
However, on the chart below, we can see that the SPY put in a major top around 480 and, for the time being, has found support around 420 (the Fibonacci 1.618 level). Considering the increased market volatility and that we are now entering a cycle of higher interest rates, it would not surprise us to see the SPY eventually break below 420.
It is worth noting that when a market makes a top after a prolonged bull-market, we usually experience distribution. Distribution with volatility results from large institutions beginning to liquidate their holdings while smaller retail investors are trying to buy stocks on sale. In other words, the retail investors are buying the dip hoping to get a bargain, while the institutional investors are selling the rally hoping to be liquidated and/or go short. It is a battle that retail investors will eventually lose!
It is important to understand we are not saying the market has topped and is headed lower. This article sheds some light on some interesting analyses that you should be aware of. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades with subscribers to our newsletter, and surprisingly, we have just entered five new trades.
WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?
Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.
GET READY, GET SET, GO – We invite you to learn more about how my three ETF Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Chris Vermeulen Chief Market Strategist Founder of TheTechnicalTraders.com
Welcome to the Technical Traders Podcast with Rob Isbitts. The show that brings you technically proven strategies and trade ideas from experts around the world. We’re going to help you make more money with less risk, so you can take your trading to the next level. Now here’s your host. Jim Goddard.
Jim – TheTechnicalTraders (00:43): My guest is Rob Isbitts he’s co-founder and chief investment strategist for SunGardenInvestment.com. Whereabouts are you Rob?
Rob Isbitts (00:52): I am in South Florida, where I’ve lived for 25 years after being raised in Northern New Jersey, near New York City.
Jim – TheTechnicalTraders (01:01): So you had decent pizza growing up.
Rob Isbitts (01:04): We did – pizza, bagels, Chinese food, and we replaced the pizza down here, the bagels, not so much, and the Chinese food. Let’s talk about something else.
Jim – TheTechnicalTraders (01:19): Rob Sungardeninvestment.com. Can you just tell us a little bit about what the company is all about?
Rob Isbitts (01:27): Sure. So I’m a former financial advisor, investment advisor and we have pretty much, boiled it down. I sold my practice a couple of years ago, retained the investment management role, but, these days there are, four different things that we do. We, speak with financial advisors and investors, in kind of an open, casual format to, try to help them based on my experience. We also do some hourly consulting, because I have been around the block in the industry and advisors tend to find that helpful. The third thing we do is that we manage model signals and distribute those through platforms. And the fourth thing that we have is something that we just put the finishing touches on after, a couple of years. We affectionately call it the Rob-bot because it takes my 35 years of investment experience and pretty much turns it into a black box algorithm that enables advisors, or investors to create their own portfolios. We just provide the infrastructure, the framework, and the mechanism.
Jim – TheTechnicalTraders (02:56): How did you get started in trading or investing?
Rob Isbitts (03:00): Well, my father taught me chart stocks, when I was 16 years old. So it was back in 1980. He never did it professionally. He certainly hoped I’d get into the business eventually. And I did, and he lived long enough for me to see that he, passed away about nine years ago. And so I started with, charting, made my way to wall street starting in 1986 in the world trade center in the back office for a Japanese bank, and kind of made my way through brokerage through, fiduciary investment advisory. Along the way, I developed my own approach to technical analysis, which like I just mentioned, is now part of, whatever we end up calling what is currently known as the Rob-bot. I’m an avid chartist. Put it this way, my wife will occasionally, catch me night charting, because to me, as it relaxing in off-hours as it is exhilarating and motivational during your trading day,
Jim – TheTechnicalTraders (04:12): Nothing worse than the wife catching you charting in the middle of the night.
Rob Isbitts (04:17): That’s right! Yep. Well, that’s kind of a takeoff on the old Chevy chase line from Caddyshack – night putting. It’s night charting, for me because I’m not a great golfer.
Jim – TheTechnicalTraders (04:30): Is there anybody you really admire or influenced you to become involved in the financial markets?
Rob Isbitts (04:37): Well, to some degree I feel like I am fulfilling, what my father was not able to do cause he had a corporate career and he was raising us in Jersey. He and my mom did make his, retirement, his modest retirement last about 30 years. So that was a big part of it. And, I think today, in the way that you kind of go, from generation to generation, what I learned from my dad, I’ve now imparted on, my son who is, a newbie in the wealth management business. And, hopefully, the work ethic that my two daughters, both so living in the Boston area, will take.
Rob Isbitts (05:29): So I think it started with dad. I’ve certainly had plenty of other influences along the way but more in the collective than let’s say a specific, mentor. I will say this though, as I’ve gotten this point in my career, I’m in the second half of my fifties and one of the things I enjoy more than anything else is mentoring other folks, whether they be professional or otherwise, to try to teach them what I’ve learned, and try to succeed. Not just from my successes, but, even more so from the many, many, many mistakes I’ve made along the way, whether it is in, developing a technical analysis system or, in the other ways that I’ve approached, investment, management and strategy,
Jim – TheTechnicalTraders (06:22): What’s your trading philosophy? What set of principles, beliefs, or experiences drive your decisions?
Rob Isbitts (06:29): Hmm, I like that question. Fortunately, I think I have a coach and answer. So it starts with, what we at Sungarden Investment Publishing, call ABL, avoid big loss – and ‘big’ is different for everybody. When I was an advisor and I was giving specific advice to clients everybody had a different definition of the B for big. For some people, it was a few percent, for other people it was many percent, and for some, it was in between. So it all starts with that. And then I think the sort of a corollary to that is that risk management is so important. I think a lot of people bandy around that term, but, to me, it really means that you have five possible outcomes whenever you make an investment. You can make a lot, you can make a little break even, lose a little, you could lose a lot. You need to take the lose a lot off the table. That is the biggest threat to your practice if you’re an advisor and to your lifestyle, if you’re, or an advisor or an individual investor,
Jim – TheTechnicalTraders (07:44): What is your favorite type of analysis or indicator you help find your, to time your trades or your investments?
Rob Isbitts (07:53): Well, you know, I did create a lot of this stuff myself and then saw my dad do it for so long toiling away when I was a kid, and again, he never did it professionally. And so when I had the opportunity and I was able to do it full time, I’ve looked at it this way. My, favorite oscillating indicator by far is the percentage price oscillator, the PPO. And in the programming that we did over the last couple of years to create this kind of automated portfolio creation tool. We worked at that pretty hard because it is difficult, whether it is that or whether it is, moving averages, or trend, things like that. It is very difficult to translate what humans do into algorithms.
Rob Isbitts (08:53): You can do it, but I think it’s fraught with potential error. I think we did a pretty nice job of humanizing, or I should say algo-lizing humans as we can. Um, I think the other thing I would say, just in terms of sort of, the pure technicals, I have found this is more just from experiencing anything else. You look at the direction of a 20 period moving average and to me that gives you a pretty good idea. In fact, we have something, that we developed fairly recently. I’ve developed a lot of intellectual property around investing and around technical analysis. But then, one that we’ve been talking about with folks recently, we call it the crash helmet indicator time that the, 20 week moving average of the S&P500 is, where the price is 5% below that moving average or more.
Rob Isbitts (09:55): And it has kind of an uncanny record of forecasting future stock prices. Let’s say about six months out. Let’s put it this way – that indicator fired recently. And so, there are no absolutes in investing and certainly not in technical analysis, everything that I do to invest is not about absolutes, it’s about evaluating, risk, versus the reward you’re seeking. But that indicator fired pretty recently – just in the last week or so. I would say that this is probably the most dangerous stock market that I have seen in my, 35, 36-year career. That said, that also means there’s the most opportunity because there’s a lot of folks who haven’t seen this type of environment and, they’re kind of newbies. And so they don’t know what they don’t know. So here I am, kind of feeling like I’m a little back seat, because I’ve been through five bear markets already, and you know, this is one, it’ll be six.
Jim – TheTechnicalTraders (11:02): Is there something you wish you would’ve known before you started trading and investing?
Rob Isbitts (11:10): How much time do you have? Lots!
Rob Isbitts (11:15): Yeah, let’s see. So, it’s funny, I mean, when you and I were chatting a little bit before, this interview offline, it’s about trade, trading, and investing. Yeah. I mean, look, it’ll make you humble really quickly. I think some of the biggest, shortcomings in my track record, my audited track record is, that when you get these V bottom, and who knows when we get the next one. I mean, as we’re speaking today, there’s a V bottom, but it’s overnight, and it’s on a very, very, very short term period if you could measure it in hours and half hours. I’m not a trader as much as I am an investor who doesn’t define timeframes. Those V bottoms determine how aggressive one should be. There’s an old wall tree expression, they don’t ring a bell at the top of the bottom, but 2020 was a period in which, they kind of did.
Rob Isbitts (12:29): Being a conservative investor by nature, you’re always kind of looking around to see if there’s another shoe to drop. And, so I think probably we’re always trying to improve, and frankly, that’s one reason we did the algorithmic version of Rob Isbitts, is because the algo we found when we backtested it, is that it, does better in all periods other than the most chaotic ones. So the downside is that a human has to step in and take the algo. So I guess if there’s anything I learned, really is that it’s good to have automated input, but at the end of the day, the human has to make the decision.
Rob Isbitts (13:24): I think people are better off that way but also assisted. In other words, the algo is the analyst, and the human is a portfolio manager. I think that’s a great combination. I think the other thing that I wish I had known earlier is timeframe analysis. I look at about a dozen different timeframes, everything from a minute, all the way up to, monthly, prices in my charts. And, I look at about 300 ETFs, which cover about 150 market segments. So you’re always looking for something that gives you a fighting chance to make money, without having a huge loss, potential. And so I think that that’s really it. Being able to look at a wide span of things and look at them over multiple time periods, the period that we’re in here, as we talk in March of 2022, the market has been just absolutely destroyed to start the year.
Rob Isbitts (14:32): I’m happy to say I’m one of the few people on the street that has actually made money this year, so far so good. And I think what that comes down to is that, one of the adjustments that I did not make when I was a young chartist, but I do make as an older chartist, is that I focus most of my time on daily, weekly charts, even the monthly, but when volatility kicks up and, and you have, external factors like we have going on with a horrific war, inflation, fed, everything speeds up and you have to speed up your analysis too. So as we’re sitting here, in March of 2022, I’m looking at, two-hour and four-hour charts, the way I normally look at daily and weekly charts and making that conversion to correspond to the market that you’re in, kind of like play. Play the market that you’re in, not the market that you wish you were in. I think that’s generally just part of being a good, flexible charter and flexible investor.
Jim – TheTechnicalTraders (15:45): You focus on ETFs only. Why is that?
Rob Isbitts (15:49): Well, that was the process of elimination. I was a stock investor for a long time. I do a lot of options work in my personal account, but they’re really difficult options. They’re difficult to scale. And when you manage money in scale for a lot of different accounts, I mean, I’d love, to find somebody that feels like they can do it. I’ve managed mutual funds on three different occasions, and I use options in the mutual fund, and I happen to think they’re an incredible tool, especially if you know how to use them. But it’s difficult. Let’s say if you’re, back in my financial advisor days, when you’re trying to run it, across a lot of accounts, get all the trades, you’re in systems aren’t set up to handle that as smoothly as they are listed, securities like stocks. It got to the point where, sort of like fool me once, shame on you, fool me a dozen times, shame on me.
Rob Isbitts (16:53): So many times where you buy good companies, the charts are in sync, and then quarterly earnings come out and they miss by a penny or whatever. Wall Street has this game that one of my peers in the business calls, millennial, old soccer, everybody gets a trophy. So you see the estimates come down, down, down, down, then they beat by a penny, or they miss by a penny either way. When you see blue-chip company drop 10% before you can do a thing, I start to realize that if we’re gonna manage money for a total return, avoid big loss, then make as much as you can, it’s kind of the second rule. Then individual stocks carry too much peripheral risk compared to ETFs.
Rob Isbitts (17:55): Frankly, in a lot of the ETF work that we do, I mentioned we follow about 300 of them, we look very closely at the underlying holding and I am a big fan of concentrated ETFs. That’s kind of how we bridge the gap. Like to me, just speaking sort of generically, I would rather own an ETF that is based on the Dow than on, let’s say the S&P500 or the NASDAQ or the Russell 2000 because I can chart 30 companies and I can get a pretty good idea. In fact, one of the things we do with D is we look at the Dow the way it’s normally posted, but it’s got this quirky waiting system, whereas by price there are ETFs for equal-weighted Dow.
Rob Isbitts (18:46): There are ETFs for dividend and weighted Dow. And so, if you only have to analyze 30 socks and, they’re all well-known, blue-chip companies, you can look inside and, and that gives you a better idea about how the full ETF is gonna do. The one last thing I’d say about things I invest in and things I don’t – probably my biggest, the biggest flag that I’ve been waving for the past decade is that bonds as an investment class are not dying. When they’re past 10, they’re gone. You can use them as trading tools, through an ETF if you want to. And we do long and short, but, in terms of bonds as part of a 60 40 portfolio, yeah, bonds as a standalone asset class debt, and, my main strategy, the Sungarden core portfolio, which we’ve run for a long time, almost 20 years now, was created to specifically target and give investors something that they, substitute for their high-quality bonds and their corporate bonds because those are areas that are treacherous for investors that investors do not quite realize is how treacherous they are.
Rob Isbitts (20:05): I think they’re starting to find out
Jim – TheTechnicalTraders (20:08): You’re known for your bond replacement portfolio. What is it, and how does it work?
Rob Isbitts (20:14): So what we do is we play offense and defense at the same time. That’s really the key. It not long short per se because we use ETFs and we are buying, or we are long ETF on both sides, but, offense and defense. Think of it this way, in the same way a football team in the US, an NFL team, the offense is on the field and the defense is on the field. Well, the offense does the scoring, right? Well, no, the defense can score too, but the defense’s main job is to play defense. So I think a portfolio should always have an offense and a defense, and frankly, especially since, I’m a big fan of our Northern neighbors, Canada.
Rob Isbitts (21:06): And that’s where you, hail from then I think, you know, analogizing it to hockey is even better depending on the game situation in hockey. You are either gonna be pressing or you are going to be in a defensive shell. Are you gonna be somewhere in between? I was a very, very, very amateur hockey player for about a decade of my life, loved the sport, still a big fan does my son. And what I see when I watch a hockey game now, I think about stuff. Hmm. Okay. If I see an offensive defenseman sort of pinching in and trying to get another goal on the board, versus, that same defenseman really not pressing up too much, that is almost identical to the way I think of navigating the market in a portfolio.
Rob Isbitts (22:09): Sometimes you’re pushing it a little bit more, sometimes a little less, and this is not go-to cash and then invest, be all invested or not invested strategy. A lot of people do that. They certainly can do it better than I can, but to me, it’s always striking a balance between offense and defense and being as tactical as possible, not being afraid to say, either this isn’t working or this did work, but I don’t think it’s gonna continue to work because the markets of today, of all the new players in it and, and so many other reasons, the markets of today reward folks who invest tactically. What I mean is weeks and months, as opposed to investing, buy and hold, for years. So I think if you combine the offense-defense, with the tactical nature that to me is a replacement for what bonds used to do.
Rob Isbitts (23:06): Do you get the cash flow income? No, you’re not gonna get 6% cash flow, but you can pursue a mid to high single-digit return. And like I said, sometimes you could surprise yourself. Or you surprised the people that you’re investing for and you put out some pretty eye-popping numbers, or in a year like this one where it started so poorly, we can make money and it’s not about earning the cash flow because rates are so low across the globe that if you reach for cash flow if you reach even for dividend income too much, you might make a 5-6% yield and then lose five times that in principle. So that doesn’t make any sense either. I’ve created not a bond substitute using a bond. I have created through Sungarden’s core portfolio, a replacement for the role that bonds used to play for investors in their portfolio. And frankly, I think it’ll be a decade or more before we ever go back to doing it the other way. And I’ll be the first one on board when the conditions are right. But we’re so far from that I don’t count on anytime soon. And that’s why we do what we do the way we do it.
Jim – TheTechnicalTraders (24:29): So much money has gone into cryptocurrencies as a person, who’s a technical trader, is this a good move by people, sheer speculation, or are they, is this another, south seas adventure from the 1720s? As I like to say, tulips from, the 1600s?
Rob Isbitts (24:50): Well, I will refer everybody to what I’ve written, and funny Jim, I thought that I was gonna get away with not having to address crypto on this call. I was wrong now. I mean, looks to me, a chart is a chart is a chart. As long as you have some semblance of understanding of what’s going on around it, we screen down to 300 ETFs, that’s our universe. That does include several in the crypto space, whether it’s direct through the ETF to try to track the coins or, through a blockchain as a mechanism. I’m a much bigger believer in the future of blockchain than I am in the coins being anything other than the speculative vehicle. But you know what, at the end of the day, it’s about money and about not losing big.
Rob Isbitts (25:50): And, if crypto is one asset that allows us to do it, though some of those ETFs, I’m as, as game as anybody else. I will say this when it comes to the longer-term view on crypto, I wrote an article not too long ago for Forbes, and I write a regular column on investment strategy, for financial advisors at US news and world report. So at Forbes, I recently put one out and it basically said, here’s how Bitcoin could go to 10,000 instead of a hundred thousand. Now, I don’t know where it’s gonna go. I’m just saying that when I look at the chart, I see the possibility of a crypto crash, but it’s gonna take a while because there’s so much resistance to it.
Rob Isbitts (26:50): So in the meantime, we might as well enjoy the ride. Frankly, I look at there’s always a little spot in our portfolio, even though it’s a bond substitute or bond replacement portfolio, there’s always a little spot that we call kind of the volatility section. And in that section, we might buy actual volatility, ETFs, which are very volatile themselves. Whether it’s long volatility or short volatility, you can do it both ways. But that’s also typically where we put our crypto position. So maybe it’s a 2-3% position. Whereas normally we would have, five or more likely 10% in, in a single PF, if not more,
Jim – TheTechnicalTraders (27:33): We’ll have more with Rob ISVI right after this.
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Jim – TheTechnicalTraders (27:59): Welcome Back. We’re speaking with Rob Isbitts – how does rampant inflation affect technical trading?
Rob Isbitts (28:07): So that brings me back to, I would say probably the most important thing that I can say to anybody that is whether you’re a new investor or an experienced investor who is trying to make sense of these markets. So, I am firmly, firmly of the belief that the following statement is true. In fact, when I give PowerPoint presentations, we have this quote up there and it says, the markets tell us a continuous story. We just have to listen to what summarizes charting in the advantages of charting in a nutshell. So reverting that back to inflation. How can you see that there’s inflation pressure building up before it’s actually building up? Just look at the charts and don’t just look at one chart. Don’t just look at the SP500.
Rob Isbitts (29:03): Don’t just look at gold. Look at 15 or 18 commodities. Look at, like I said, 300 ETFs we track, but they represent, I believe it’s about 160 market segments. So you get to see everything now through the more mature world of ETFs, and you get to see it play out intraday every so how do you see inflation and how do you take advantage of it? Well, first you get a consensus by looking at enough charts, whether it’s day charting or night charting, going back to what we were talking about a few minutes ago And you will start to get a consensus, you’ll start to see the same thing. And so in today’s world, you might see, okay, commodities on an intermediate-term basis are a little bit pooped out, but, but you know, a long term basis, there could be tremendous potential going from, and so you have to manage that to your timeframe.
Rob Isbitts (30:04): Then, the other thing that we see is, is interest rates. And particularly when I look at our interest rates, one of the ways that we have taken advantage of rising inflation is to buy, unlevered, because I don’t like leverage. But we buy ETFs that profit from rising rates. So basically you’re shorting bonds, but you doing it through a long position in an ETF. And I think there’s a lot of that type of stuff out there. I think the bottom line question, I get this all the time when the market’s going down, what do you do? You just gotta go to cash, right? Well, no, if the market’s going down, if the market’s going up and I mean, any market, not just the main averages, well, if, if you have access to investment, okay, ETFs in our case that is specifically designed to go the opposite of what a certain index is doing, then that’s your answer. So you don’t have to sit on the sidelines forever. Cash build-up doesn’t hurt if you have the market picture is opaque, but firmly believe that investors need to understand that there are a lot of ways that they can profit from a price of something going down and, and more and more, those types of things are, are, are coming out.
Jim – TheTechnicalTraders (31:39): Rob, if you had just one piece of advice for people, people who are looking to get into investments or wanna protect their investments, what would it be?
Rob Isbitts (31:49): Avoid the scammers and the folks that look like it’s too good to be true. Investing has become a rat nest. I heard somebody say the other day, I think was watching one of those, greed shows, so many of which take place in my home state of Florida, by the way, for some reason, anytime you have money involved and a lot of money involved, the ner-do wells are going to come in be because they see an opportunity to exploit. I see so much of that out there on a daily basis. Sometimes it’s intentional, there are people really trying to just take your money, without offering much in return. And I kind of take that personally given the hundred and thousand some odd hours I put into doing this the right way.
Rob Isbitts (32:48): The other type is the type that doesn’t know what they don’t know. And, those would be, the folks that are on some of them, let’s say more progressive social media channels, the newer ones, the TikTok Instagram, as opposed to the LinkedIn types or the Twitter types even, that people have to be very careful as soon as something seems like it’s too good to be true or too easy. You have to have a critical mind and you have to second guess before you move forward. And frankly, that’s part of charting too, but I think it’s also part of life, especially, in the age of social media.
Jim – TheTechnicalTraders (33:32): How important is it for investors to inform themselves about how things work so that they understand what’s going on when they talk to their investment counselor?
Rob Isbitts (33:43): Oh, I am a huge believer. The very first newsletter that I wrote directly to clients, was called the educator. And I have believed for a couple of decades now that people should want to be about this. The problem is when you have a 13, 14 year period in which nothing goes wrong when it does, it’s only for a blip, then it’s easier for people to either get overconfident, indifferent apathetic, or all the above. And the problem with that is that you are not prepared for what will happen. I have seen enough in my years of being a professional investor and, from my days of being an advisor, the individual clients, and managing mutual funds, so I think that people should do, if they’re gonna put that much of their money into it, they should do it with intent.
Rob Isbitts (34:52): They shouldn’t just leave it to somebody without understanding that doesn’t mean you have to understand it so well, you could do their job because that’s a long way. I mean, a lot of people would be like, ‘Hey, can you teach me, what you know’. Well, we’ve got 110,000 hours to catch up. I’m not sure how quickly we can do that, even in the internet age. So I think, people should get educated. And really frankly, I think a lot of that falls on the advisors. I praise where necessary, and where appropriate in my industry. I’m also very, very critical of my industry. And I feel like a lot of financial advisors today are kind of punting on the investment management process. They’re outsourcing to third parties that are really built for scale and efficiency on their end. That doesn’t do anything for the advisor’s client ultimately, and the advisor needs to understand the difference, frankly, that’s why we built the, as we’re calling it now, the Rob-bot we’ll see what we call it, but, because we wanted to put a framework into any financial advisor’s hand so that they can make their own rules with a little bit of coaching from us and, and then deliver something to their clients, that asset management and an actual asset to their practice.
Jim – TheTechnicalTraders (36:21): Rob, thank you so much for chatting with us.
Rob Isbitts (36:24): Well, thank you, Jim. This was a pleasure. And, thank you very much for the questions
Jim – TheTechnicalTraders (36:30): My guest has been. Rob Isbitts co-founder and chief investment strategist for sungardeninvestment.com. I’m Jim Goddard.
Jim – TheTechnicalTraders (36:39): Thanks for joining us this week on TheTechnicalTraders podcast.
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Chris Vermeulen from The Technical Traders sits down with Jim Goddard on HoweStreet.com to discuss precious metals and crude oil’s latest moves. We’ve seen a pretty strong pullback in the last trading sessions yet may see crude oil continue to go higher. Copper miners have done exceptionally well and are primed and ready to have a pretty big rally.
Overall, we are in a news-driven market which results in high volatility and a lack of liquidity. The combination of these is creating very chaotic times. Though this can be a great opportunity, traders need to be really honed in and focused on the short-term otherwise you may find yourself on the wrong side of a play.
TO LEARN MORE ABOUT PRECIOUS METALS & CRUDE OIL’S LATEST MOVES – LISTEN TO THE PODCAST
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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.
https://thegoldandoilguy.com/wp-content/uploads/2021/12/Howestreet.jpg300400adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-23 10:10:422022-03-23 10:10:46Perfect Storm – Commodity, PM & Crude Oil Prices To Go Higher? Video
How can we protect our portfolio against losses when stocks are in a correction? Or even if stocks are not currently in a correction? There are many schools of thought on that.
One way is to close positions and wait for more bullish times on the sidelines. But that may not be the best choice for any number of reasons.
Perhaps you are bullish on a stock position long-term and don’t want to sell it. Maybe you already have a nice gain on your shares but are worried about a further decline. Or perhaps there’s a dividend that you would like to continue to collect.
Simple Portfolio “Insurance”
One relatively straightforward way to protect open stock positions is to buy Put protection. Puts are option contracts that have an inverse correlation to price. If the shares go down in price, the value of the Put will increase, thereby providing some offset to losses in the underlying stock.
The tradeoff is that Puts come at an out-of-pocket cost, and they expire. There’s a cost to carry to have that “insurance” in place.
Taking it a Step Further with a “Collar”
A Collar can be an effective strategy to ensure against significant losses. A common way to offset the cost of purchasing protective Puts is to implement a Collar strategy using options.
Calls are option contracts that increase in value when the underlying shares go up in value. We can sell Calls against our long stock and collect a premium. That’s a simple Covered Call strategy. But in itself, we get no downside protection on our shares other than the amount of the premium collected for selling the Calls.
We can take that a step further by using the premium collected from selling the Calls to purchase protective Puts. That’s known as a Collar. And depending on the option strike prices and duration, we may be able to do that for a net credit and put a little extra profit in our pocket.
Putting on a Collar
Since options contracts control 100 shares per contract, the number of shares you want to protect determines the number of contracts. Say you have 1,000 shares. In that case, the Collar position would consist of 10 short Calls and 10 long Puts.
Here’s a P/L graph of a Collar on AAPL. In this example, the stock is at $160. A $170 Call is sold for $1.25, and a $140 Put is purchased at $1.00. A Net credit of $0.25 is collected when the position is put on. Both options are 30 days to expiration (DTE).
The Tradeoffs
While it’s tempting to think of the Collar as a way to get “free” Put protection, there are some tradeoffs. By selling Calls, we are limiting our upside. In the example above, we could have a $10 gain to the upside. We’d also get to keep any net premiums collected, another $0.25 per share. But because we’re obligated to provide shares at $170, we have capped our profit potential.
The Collar also only gives us partial protection to the downside. Options also have a limited life and expire.
What Happens at Expiration?
If the share price is above our Call strike price at expiration, we’re likely to have our shares “called away” – meaning we’ll be obligated to sell our shares at the strike price, $170 in this example.
But we could also extend the duration by rolling that Call out for additional credit. As long as there are more than a few cents of time value in our short Call, we’re less likely to have it exercised even if it is in-the-money (ITM). If our counterparty wanted to close their position, as long as there’s time value left in the option, they would be better off to sell their long Call rather than exercise it against us.
If the share price is between our Call and Put strike prices at expiration, those options expire worthlessly, and we’re left with our stock as before.
If the share price has dropped below our Put strike, we would want to either sell the Put or exercise it. We could “put” the stock to our counterparty at $140 per share. Alternately, we could sell the Put and continue to hold onto our shares.
The best case is for the options to expire with the share price just below the Call strike price. In that case, both the Puts and the Calls expire worthlessly, and we get to keep our shares. We are then free to sell shares at a profit or keep them and apply another Collar further out in time.
Summary
If you own shares that you don’t want to sell, consider putting on a Collar using options to give you some downside protection. A Collar entails selling calls against your shares and using the premium collected to purchase puts for downside protection. The tradeoff is your upside is limited. But you get to hold onto your shares to continue to collect dividends (if any), all while having long Puts in place for downside protection.
Read On To Learn More 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
https://thegoldandoilguy.com/wp-content/uploads/2021/11/options-e1636471121734.jpg265400adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2022-03-23 10:05:222022-03-23 10:05:30How To Use A ‘Collar’ To Protect Your Portfolio Against Losses
