A Strengthening US Dollar Is A Double-Edged Sword

The US Dollar continues to attract capital from investors all over the world. But could this be a double-edged sword for US stocks? As capital flocks to the USD, this in turn hurts US multinationals as they need to convert their weak foreign currency profits back into USD.

The USD safe-haven trade may eventually trigger a broad and deep selloff in US stocks. As the USD continues to strengthen, corporate profits for US multinationals will shrink or disappear.

US Multinational $1 Billion Revenue Example:

  • $1 billion in revenue-generating a 15% net profit with a net neutral 0% currency translation equals a $150 million profit.
  • $1 billion in revenue-generating a 15% net profit with a negative -15% unfavorable currency translation expense equals a $0 profit!

In addition, the impact of inflation on the global consumer will lead to a pullback in consumer spending which will further reduce corporate revenues and profits. The combination of the global currency dislocation along with the economic cool off will bring on a global recession.

The following chart by Finviz shows the percentage the USD has appreciated against all the major global currencies year to date:

Let’s review a few of these primary currencies to get a better idea of how much capital is migrating out of each of these countries and into the US dollar.      

CANADIAN DOLLAR LOSING -7.29%

The Canadian Dollar CAD peaked in the first week of June 1, 2021. The Canadian economy has benefited greatly from soaring energy and commodity prices, strengthening metals markets, and strong real estate prices. But despite this economic strength capital is still migrating out of the CAD and into the USD.

INVESCO CURRENCY SHARES • CANADIAN DOLLAR TRUST ETF • ARCA • WEEKLY

CDN Dollar vs US Dollar Chart

SWITZERLAND FRANC LOSING -12.53%

The Switzerland Franc CHF peaked in the first week of January 6, 2021. The CHF has long been considered a safe haven for global capital during times of risk-off global market stress. The primary factor hurting the CHF is its current fiscal policy and negative interest rate of -0.75%. Therefore, the USD is still the preferred safe-haven currency due to CHF’s negative rate. Capital continues to flow out of the CHF into the USD.

INVESCO CURRENCY SHARES • SWISS FRANC TRUST ETF • ARCA • WEEKLY

Swiss Franc vs US Dollar Chart

BRITISH POUND LOSING -13.87%

The British Pound GBP peaked in the first week of May 24, 2021. The GBP was the primary global reserve currency in the 19th century and the first half of the 20th century. However, that status ended when the UK almost bankrupted itself fighting World Wars I & 2. Since that time the US dollar has replaced the GBP as the primary reserve currency. The USD has a similar interest rate to the GBP and is also benefiting from its strong presence in energy and commodity markets. Therefore, the GBP is experiencing capital flows out of its currency and into the USD.

INVESCO CURRENCY SHARES • BRITISH POUND TRUST ETF • ARCA • WEEKLY

British Pound vs US Dollar Chart

JAPANESE YEN LOSING -23.76%

The Japanese Yen JPY peaked in the first week of March 2, 2020. The JPY has also long been considered a safe haven for global capital during times of risk-off global market stress. However, the primary factor hurting the JPY is its current fiscal policy and negative interest rate of -0.10%. Therefore, the USD is still the preferred safe-haven currency due to the JPY’s negative rate. Capital continues to flow out of the JPY into the USD.

INVESCO CURRENCY SHARES • JAPANESE YEN TRUST ETF • ARCA • WEEKLY

Japanese Yen vs US Dollar Chart

how we CAN HELP YOU navigate current market trends

At TheTechnicalTraders.com, my team and I can do these things to assist you:

  • We reduce your FOMO and manage your emotions.
  • We have proven trading strategies for bull and bear markets.
  • We provide quality trades you can trust.
  • We tell you when to take profits and exit trades.
  • We save you time with our research.
  • We provide above-average returns/growth over the long run.
  • We have consistent growth with low volatility/risks.
  • We make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

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.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

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

Panic Selling And The Potential Cost Of FOMO – Video

Chris Vermeulen sits down with Jim Goddard on HoweStreet to discuss the recent massive panic selling in the stock markets. Other than cash, natural gas and the US Dollar are the only two safe havens at the moment. Foreign investment, for example, will move to the currency they believe in the most and right now that is the US Dollar.

When fear spikes, people being to liquidate every asset they own no matter the price. A ratio of over three on the panic selling indicator indicates fear is taking over. Yesterday we peaked at 31 – an extreme level. While this may be a day trader’s heaven, everyone doing longer-term trading should pretty much sit back and watch things unfold.

Should you hold onto stocks in a downtrend or during the lead-up to a bear market? The short answer is no. Why watch your money disappear just because you want to be in the stock market. Ask yourself this: would you rather miss out on a 4-5% return or save yourself from a 40-60% market correction?

The reality is that if we are entering a bear market it could take between 4-18 years to get back to previous highs. Not many people can wait that long for their accounts to recover. Can you?

TO LEARN MORE ABOUT panic selling – listen to the podcast

TO EXPLORE THE STRATEGIES IN THE TOTAL ETF PORTFOLIO, PLEASE VISIT US AT THE TECHNICAL TRADERS. YOU HAVE 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.

The Harsh Realities Of Caving Into Emotional Trading

Wow, what an emotional trading day and week thus far. What John said Wednesday in the member’s comments could not be more accurate for most people. “Only thing scarier than shark week is FED week!”

Luckily we safely navigated the turmoil and FOMO brought on by FED announcements on Wednesday, May 4th.

  1. We knew it would be choppy and that trades should only last hours to a day, and you must actively manage positions.
  2. Earlier this week, I mentioned the only things I liked were UUP, UNG, and SVXY. So far, UUP is flat; given the recent market sell-off, that’s a win. UNG is up 15%, and SVXY rallied 7.2% in the last 24 hours. These were not official trades, but I gave trading tips and updated you each day and how to handle them if you were to trade them. Get in, make money, get out.
  3. Wednesday’s Fed rally sparked FOMO buying, indexes hit resistance, became overbought, and had a cycle high. Today investors bumped shares with the panic volume indicator on the downside, spiking over 31 yesterday afternoon. Temporarily.
Emotional Trading

Overall not much safety during panic selling like this, and it’s the reason why I don’t believe in holding stocks in a downtrend or bear market. I get pushback all the time about holding cash, but the answer as to why I do is simple.

Why You Want To hold cash vs Own Stocks

All I have to do is ask:

Would you rather own stocks because you like owning stocks and lose 25-60% of your money if we enter a bear market?

OR

Would you rather have a ton of cash waiting for you to buy your favorite stocks at a much lower price, earn more dividends, and make bigger returns at some time in the near future?

Simple answer….or is it?

That last part, “make bigger returns at some time in the near future”, may throw a kink into some of your answers. It’s like that test they do with kids where they offer one cookie now or wait five minutes, and we will give you four. Most people take one cookie, unfortunately, and it defies my question and logic = frustrating!

This leads to the most frustrating part of what I do. I have watched trader after trader make the same mistakes for the past 20 years. They go through the cycle of thinking the markets are amazing, to having a big winning stock trade that hooked them, to emotional FOMO-based trading, to the eventual closing of their trading account. They get crushed both financially and mentally. No matter what I do to help, most are driven by their emotions, which by the way, is the most powerful decision-making force we as humans struggle to control.

The reality is most traders would rather trade and hold stocks no matter what direction the stock market is going, and here’s why:

  1. They think they should (lack understanding of risk and position management).
  2. FOMO, they fear missing out on potential gains and don’t want to be left behind.
  3. They crave the risk/excitement (the rush of trading is like gambling, it is addicting).
  4. They cannot contain their emotions and struggle with exiting both winning and losing Trades.

How do I know these things?

Simple, I used to think and trade that way. And it was days like WEDNESDAY when I blew up one of my trading accounts trading ES mini futures. In one day, I lost everything I had!

Facing the Reality of emotional trading

Yesterday afternoon I relayed this story to my subscribers so that they might fully understand why I spend so much time educating people about cash being a wise position when the markets are in the state they are in right now.

The day I blew up my trading account I was down so much money I could not sell, so I just kept averaging down, waiting for the intraday bounce. Well, it never came, and the only thing that did come was the closing bell and margin call that broke my account, my confidence, and my dreams.

I never did tell my then-girlfriend and now-wife about that one. I felt like a total loser, my confidence crushed, and I got depressed for a little while. That was the defining moment in my trading career.

To give up, or to trade like it’s a business and do all the proper things that I hated to do like: sell losing trades and live to trade another day, smaller positions, fewer trades, stop trading leverage (futures and 2x 3x ETFs) because they made me too emotional, and to wait for trades to form vs. finding trades that may not be real setups, etc. I say all of this in hopes that it connects with some of you in the same situation.

You either had a very stressful day and lost a lot of money, or your thought Thursday was incredible to watch and/or trade because you understand market movements, risks, how to trade it, and know there will be a lot more time and price action to earn consistent oversized returns later in a favorable market condition.

I share my analysis, thoughts, and experience with you to help prepare you mentally and emotionally with your portfolio for days like this.

And for the record none of the price action, this week, was anything out of the norm. Wild, sure, but this is typical price action in a bear market.

how we CAN HELP YOU live to trade another day

At TheTechnicalTraders.com, my team and I can do these things:

  • We reduce your FOMO and manage your emotions.
  • We have proven trading strategies for bull and bear markets.
  • We provide quality trades you can trust.
  • We tell you when to take profits and exit trades.
  • We save you time with our research.
  • We provide above-average returns/growth over the long run.
  • We have consistent growth with low volatility/risks.
  • We make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

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

Panic Selling And The Potential Cost Of FOMO – Video

Chris Vermeulen sits down with Jim Goddard on HoweStreet to discuss the recent massive panic selling in the stock markets. Other than cash, natural gas and the US Dollar are the only two safe havens at the moment. Foreign investment, for example, will move to the currency they believe in the most and right now that is the US Dollar.

When fear spikes, people being to liquidate every asset they own no matter the price. A ratio of over three on the panic selling indicator indicates fear is taking over. Yesterday we peaked at 31 – an extreme level. While this may be a day trader’s heaven, everyone doing longer-term trading should pretty much sit back and watch things unfold.

Should you hold onto stocks in a downtrend or during the lead-up to a bear market? The short answer is no. Why watch your money disappear just because you want to be in the stock market. Ask yourself this: would you rather miss out on a 4-5% return or save yourself from a 40-60% market correction?

The reality is that if we are entering a bear market it could take between 4-18 years to get back to previous highs. Not many people can wait that long for their accounts to recover. Can you?

TO LEARN MORE ABOUT panic selling – listen to the podcast

TO EXPLORE THE STRATEGIES IN THE TOTAL ETF PORTFOLIO, PLEASE VISIT US AT THE TECHNICAL TRADERS. YOU HAVE 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.

Is The US Dollar The Global Safe-Haven?

Global investors continue to pile into the US Dollar making it the primary safe-haven trade.  This may eventually trigger a broad and deep selloff in U.S. stocks. As the USD continues to strengthen, corporate profits for US multinationals will begin to disappear.

The following chart by Finviz shows the percentage the USD has appreciated against all the major global currencies during the past month:

US Dollar chart

In the current market environment, it’s imperative to assess your trading plan, portfolio holdings, and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments, and moving into cash.

USDJPY UP +13.29% VS S&P 500 -12.76%

The S&P 500 peaked on January 5, 2022, and after 3-months put in a lower top on March 29, 2022.  In comparison, the US Dollar USD has gained steadily throughout 2022 as noted in the FX currency pairs USDJPY, USDCHF, and USDCAD.

Interestingly we can see that as the USD is picking up steam to the upside simultaneously stocks are selling off. It appears that the money that is coming out of the equity markets is going into cash. But not just any cash but specifically into US dollars.

The global appetite for the US dollar and its subsequent rise can kill the stock market as US corporate profits dry up and everything the US consumer purchases in US dollars rise to levels that are no longer sustainable.

UNITED STATES DOLLAR • GLOBAL COMPARISON • OANDA • DAILY

US Dollar Global Comparison Chart

GBPUSD LOST -36.30% 2007-08

During the Financial Crisis of 2007-2008, the British Pound vs the US Dollar GBPUSD lost -36.30% in 14-months. Translation: the USD gained +36.30 against the GBP!

The current drop in the GBPUSD has been roughly -13.00% over the last 8-months.

Potentially the GBPUSD could move down another -20% over the next 6-months or longer if the downturn lasts for an extended period. Translation: the USD has the potential to gain an additional +20% against the GBP!

GBPUSD • BRITISH POUND VS US DOLLAR • FXCM • MONTHLY

US Dollar vs British Pound chart

AUDUSD LOST -39.20% 2007-08

During the Financial Crisis of 2007-2008, the Australian Dollar vs the US Dollar AUDUSD lost -39.20% in just 4-months. Translation: the USD gained +39.20 against the AUD!

The current drop in the AUDUSD has been roughly -8.42% over the last 1-month.

Potentially the AUDUSD could move down another -30% over the next 3-months or longer if the downturn lasts for an extended period. Translation: the USD has the potential to gain an additional +30% against the AUD!

AUDUSD • AUSTRALIAN DOLLAR VS US DOLLAR • FXCM • MONTHLY

US Dollar vs Australian Dollar Chart

DISCOVER HOW TO MANAGE DRAWDOWNS

Drawdowns are critical as the larger the loss the more difficult it is to make up. A loss of 10% requires an 11% gain to recover, however, a 50% loss requires a 100% gain to recover, and a 60% loss requires an even more daunting 150% gain to simply return to break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown. A 10% drawdown can typically be recovered in weeks or a few months while a 50% drawdown may take several years to recover. Depending on a trader’s age they may not have the time to wait on the recovery nor the patience. Therefore, successful traders know it’s critical to keep their drawdowns within reason as most of them learned this principle the hard way!

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Especially in times like these, traders must understand where opportunities are and how to turn this knowledge into profits. As technical traders, we follow price only, and when a new trend has been confirmed, we change our positions accordingly. We provide our ETF trades to subscribers. Recently, we entered new trades, all of which hit their first profit target levels and then eventually triggered their break-even profit stop-loss orders on their remaining position. After booking our profits we are now safely in cash preparing for our next trades. 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. Our core objective is to protect our valuable capital while identifying suitable risk vs reward opportunities for profits in new and emerging trends.

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.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

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

US Dollar, Natural Gas ETF – UUP, UNG, Cash – Trader Tip Video

In today’s trader tip video, Chris talks about the current stock market volatility, the US dollar ETF UUP, the natural gas ETF UNG, and his current cash position. In these volatile times, the best position to be in is cash. We closed out 7 winnings trades a few weeks ago and we are currently in cash, watching the market slide and test the lows.

Overall, we are very close to the market flipping into a bear market. At that point, it is a game-changer and trading strategies must change. Are you ready to catch the downward trends?

TO LEARN MORE ABOUT UUP, UNG, and cash position – 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.

Market Volatility – Traders Must Adapt Or Risk Losing Their Shirts

Market volatility remains elevated and may be setting the stage for spikes even higher than we have already experienced.

Global money is continuing to flow into the US Dollar making it one of the primary safe-haven trades.  This may eventually trigger a broader and deeper selloff in U.S. stocks. As the USD continues to strengthen corporate profits for US multinationals will begin to disappear.

It’s imperative to assess your trading plan, portfolio holdings, and cash resources. Experienced traders know what their downside risk is and adapt as needed to the current market environment.

If you still have money invested in Amazon, Netflix, PayPal, or one of the many other stocks that are sinking fast there is no easy way out. Your options are:

  1. Hold tight and “hope” for a rally to recover part of your money.
  2. Reduce some of your position to “limit your downside” in case the bottom really falls out, and then sell the balance after a bounce of 5-8%.
  3. Move to cash, “bite the bullet”, get a good night’s sleep, take a break, reassess, and live to come back and trade another day.

NASDAQ ENTERS BEAR MARKET TERRITORY

The NASDAQ peaked at around 3.1618% of its Covid 2020 high-low range the week of November 21, 2021.

  • THEN – the QQQ ETF’s first swing down was -21% over a 16-week period (4 months).
  • THEN – a brief 3-week rally, retraced around 61.8%.
  • THEN – resumed its downtrend by taking out its previous low.

THEREFORE – according to the -20% Bear Market Rule: QQQ – 23.32% from its peak and -21.27% YTD is in a bear market.

QQQ • INVESCO QQQ ETF TRUST • NASDAQ • WEEKLY

market volatility - QQQ chart

AMAZON BREAKING DOWN -35%

Amazon AMZN peaked at around 3.1618% of its Covid 2020 high-low range the week of July 12, 2021.

  • THEN – AMZN made a double top the week of November 15, 2021.
  • THEN – the first swing down was -28.91% over a 16-week period (4 months).
  • THEN – after a brief 4-week rally, retraced a little more than 61.8% of its initial downswing.
  • THEN – resumed its downtrend by taking out its previous low.

THEREFORE – according to the -20% Bear Market Rule: AMZN -35.74% from its peak and -25.39% YTD is in a bear market.

AMZN • AMAZON.COM, INC. • NASDAQ • WEEKLY

market volatility - amazon chart

NETFLIX PLUMMETS -72% IN 5 MONTHS

Netflix NFLX peaked at around 2.382% of its Covid 2020 high-low range the week of November 15, 2021.

  • THEN – NFLX’s first swing down was -17% over a 5-week period.
  • THEN – a brief 3-week rally, NFLX retraced only 25%.
  • THEN – the second swing down was -43% over a 4-week period.
  • THEN – only less than a 2-week rally retraced around 33%.
  • THEN – resumed its downtrend by taking out its previous low.

THEREFORE – according to the -20% Bear Market Rule: NFLX – 72% from its peak and -68.40% YTD is most definitely in a bear market.

NFLX • NETFLIX, INC. • NASDAQ • WEEKLY

market volatility - netflix chart

PAYPAL DROPS -73% IN 9 MONTHS

PayPal PYPL peaked at around 5.1618% of its Covid 2020 high-low range the week of February 16, 2021.

  • THEN – PYPL put in a double top the week of July 26, 2021.
  • THEN – the first swing down was -14% over a 4-week period.
  • THEN – a brief 4-week rally, retraced about 61.8%.
  • THEN – the second swing down was -39% over a 14-week period (3.5 months).
  • THEN – a 6-week sideways rally retraced only around 10%.
  • THEN – resumed its downtrend by taking out its previous low.

THEREFORE – according to the -20% Bear Market Rule: PYPL – 73% from its peak and -53.39% YTD is most definitely in a bear market.

PYPL • PAYPAL HOLDINGS, INC. • NASDAQ • WEEKLY

market volatility - paypal chart

DRAWDOWNS HAVE A CRITICAL IMPACT

We need to remember the larger the loss the more difficult it is to make up. A loss of 10% requires an 11% gain to recover, however, a 50% loss requires a 100% gain to recover, and a 60% loss requires an even more daunting 150% gain to simply return to break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown. A 10% drawdown can typically be recovered in weeks or a few months while a 50% drawdown may take several years to recover. Depending on a trader’s age they may not have the time to wait on the recovery nor the patience. Therefore, successful traders know it’s critical to keep their drawdowns within reason as most of them this principle the hard way!

prepare yourself for Market Volatility

Especially in times like these, traders must understand where opportunities are and how to turn this knowledge into profits. 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. Our core objective is to protect our valuable capital while identifying suitable risk vs reward opportunities for profits in new and emerging trends.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

As technical traders, we follow price only, and when a new trend has been confirmed, we change our positions accordingly. We provide our ETF trades to subscribers. Recently, we entered new trades, all of which hit their first profit target levels and then eventually triggered their break-even profit stop-loss orders on their remaining position. After booking our profits we are now safely in cash preparing for our next trades. Our models continually track price action in a multitude of markets and asset classes as we track 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.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

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

Selling Puts – A Simple Options Strategy

Selling puts is a neutral to bullish strategy. Traders tend to overcomplicate things.  This is especially true with options trading where puts and calls can be bought and sold in seemingly endless combinations with cute names like calendars, diagonals, butterflies, iron condors, ducks, lizards, and so on.

While more complicated strategies have their place, are they necessary to be a successful options trader?  No, not at all.  Quite often, simple strategies are all that are needed to make consistent profits.

“Everything should be made as simple as possible, but not simpler”.  That ironically is a paraphrase of something Einstein said – or is at least attributed to him. 

Selling Puts

Buying a put gives the holder the right to sell stock at the strike price to someone else, but only up to the time when the option expires.  We might buy a put to have downside protection, i.e., “insurance”, against a decline in the price of a stock we own.  We might also buy a put as pure speculation on a decline in price in the underlying.  The price paid for a put is a sunk cost that can only be recovered if the put increases in value. 

For every put buyer who is long a put, there is a put seller that is short a put.  The put seller receives the price, or “premium”, paid for the put.  In exchange for the premium received there is an obligation for the put seller to possibly buy shares at the strike price.

Two Simple Rules for Put Selling

  1. Like the stock
  2. Like it at the strike price

We should only sell puts on a stock that we would be willing to buy.  If we’re willing to buy shares of a stock, why not sell puts on it and buy shares at a discount?  Or perhaps just collect put premiums and never actually buy the shares?

We should only sell puts when we think the share price will go up, stay about the same, or if there is a drop it will be relatively small.  Here is where Technical Analysis comes in to help us assess the outlook for a stock.  We may be looking at an attractive stock that we wouldn’t mind owning, but just as with buying shares, we would only want to sell puts when we’re bullish on the stock at its current price.

Trade Management

There are a couple of possibilities for how to manage a short put trade. 

If the underlying share price is above the strike price at expiration, we can simply let the put expire worthlessly.  We get to keep the premium collected and our obligation to buy shares ends when the option expires. 

If the underlying share price is below the strike price at expiration, we’ll be assigned and must buy shares.  Keeping in mind the Two Simple Rules mentioned above, this is not necessarily a bad thing as we can:

  • keep the shares for appreciation and dividends (if there is a dividend). 
  • sell the shares and be done with the position.
  • turn around and sell call options against our shares and continue to collect option premium and any dividends.

If the underlying is below the strike price before expiration, there is the possibility of early assignment – at least with American-style options.  Some underlying, in particular cash-settled index products, have European-style options that are only exercisable at expiration.  

If there is a significant time value left in the put option, an early exercise is unlikely.  It would be better for the put holder to simply sell their option if they wanted to exit the position.  Otherwise, they would be giving away the time value in the option.  But if the time value is small, they may choose to exercise before expiration.

Rolling

As put option sellers, we are in the “business” of selling time value in exchange for taking on an obligation to buy shares at the strike price.  If the time value is getting small in a put we sold, we can buy back that option and sell another one further out in time.  We can almost always do that for a net credit because we’re selling more time value.  Every additional credit we collect by rolling our option further out in time reduces our risk and potential cost basis. 

For example, say a stock is trading at $25.  We sell a $24 put for 30 days out and collect $1 of put premium.  Since we might have to buy shares at $24, our initial risk in the trade is $24 – $1 = $23.

Note that we’re already better off than if we had simply bought the shares at $25.

But suppose the share price dips to $23 and we think we’re likely to get assigned on the put.  We could wait for the assignment and buy the shares at $24. We could also buy back the put for a debit and sell one further out in time for a credit.  As we are selling more time value than we’re buying back, we should be able to extend the duration on that position for a net credit.   

Going back to our example where we sold the $24 put for $1, perhaps we’ve rolled that forward several times, collecting an additional $0.50 credit with every roll.   After three rolls, our cost basis on the shares would be $24 – $1 – $0.50 – $0.50 – $0.50 = $21.50.   Where we originally thought we liked the shares at $25, by selling puts instead of buying the shares we now own them with a 14% discounted cost basis of $21.50. 

Conclusion

After many years of buying and selling options using a wide variety of strategies ranging from the simple to complex, I find that a simple strategy like selling puts can be one of the easiest to manage and most reliable for generating regular profits.  Don’t make it more complicated than it needs to be!

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want 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.   

Our Options Specialist, Brian Benson, has been on fire. During the last month, of the last 13 trades he has made, 11 of them have finished in the money!

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

Using Comparison Analysis For An Edge

Multi timeframe, as well as comparison analysis, have many benefits. As traders, we tend to utilize the shorter-term time frames to enter our trades and place our stops. But the BIG money is made from gleaning information from the longer-term charts. We would classify long term as monthly or weekly while short term would be a daily or 4-hour time frame.

Comparison analysis can be done by comparing different time periods or we can see how our market is trading vs another highly correlated market.

Since we have a lot of subscriber interest in stocks, we thought it might be time to compare the current chart of the SPY to the S&P 500 index during the 2002-2009 period. The S&P 500 weekly chart experienced a nice bull market with several buy points from 2002 up to 2007.

S&P’s 2007 top occurred at its 2.0 or 200% extension of its 2002 high vs low. Then about 5-months later sold off a little over -20%. After hitting the key -20% psychological end-of-bull-market area the S&P rallied for several weeks up to its 1.618 overhead resistance. Then after turning back down at the 1.618 the S&P lost approximately -50% of its value. The complete drop occurred over a 17–18-month period from peak to trough.

2002-2009 SPX • S&P 500 INDEX CFD • WEEKLY • TRADINGVIEW

Comparison analysis SPY

SPY VULNERABLE TO ANOTHER -8% DOWN BEFORE STAGING A DEAD-CAT BOUNCE!

The SPY is down approximately -12 to -13% from its peak for 2022. It is feasible the SPY could fall another -8% or reach -20% before it stages some type of rally into late summer or early fall. If this scenario plays out, we should then prepare for what could be a significant drop or bear market in the 4th quarter of 2022 that could extend into 2023 and beyond.

The 2007 top of the S&P 500 index occurred at 2.0 or 200% of its previous major high-low swing low. The 2022 top for the SPY also occurred at 2.1618 or 200% of its Covid high-low swing low.

The potential exists for the SPY to pull back -20% from its peak before staging a temporary rally to a lower distribution top.

2020-2022 SPY • SPDR S&P 500 ETF TRUST • 4-HOUR • TRADINGVIEW

Comparison analysis SPY

USD CONTINUES TO MOVE HIGHER

We are now seeing that major economies (US/UK/Japan) are not immune from global deleveraging and inflation. Investors have been seeking safety in the US Dollar and this may eventually trigger a broader and deeper selloff in U.S. stocks. As the USD continues to strengthen corporate profits for US multinationals will begin to disappear.

Especially in times like these, traders must understand where opportunities are and how to turn this knowledge into profits. Part of what we do at www.TheTechnicalTraders.com is to distill price action into technical strategies and modeling systems. These assist us in understanding when opportunities exist in the US stock market and specific sector ETFs. Our core objective is to protect our valuable capital while identifying suitable risk vs reward opportunities for profits in new and emerging trends.

A CANARY IN THE COAL MINE – BERKSHIRE HATHAWAY

Around 1911, miners would carry canaries into coal mines to give them an advanced warning of danger. This phrase or analogy is also utilized by traders in the financial markets. Our canary or canaries would simply be a market or stock that might give us an indication that there is a problem with the overall market or that the global equity markets are shifting from a bull to a bear.

Berkshire Hathaway BRK.A (NYSE) founded and operated by famed Warren Buffet is a diversified holding company that owns subsidiaries that engage in insurance, freight rail transportation, energy generation, and distribution, services, manufacturing, retailing, banking, and others. It is a good candidate for “a canary in the coal mine”, in our case the stock market. 

Berkshire is down approximately -9% from its 2022 peak but remains up +10% year-to-date. BRK’s stock price reached 200% as its shares traded above 2.618 and 2.666 for a few days before selling off. From its Covid low on March 23, 2020, to its 2022 high on March 29, 2022, BRK rallied 2 years and 6 days from trough to peak.

If BRK were to lose -20% from its peak or give back all its 2022 gain in the stock price we should prepare to sell the rally that follows if we have not done so already. Note: TTT subscribers are already safely in cash awaiting trade instructions for select alternative or inverted ETFs.

BRK.A • BERKSHIRE HATHAWAY INC. • NYSE • DAILY • TRADINGVIEW

Berkshire Hathaway Chart

UNDERSTANDING PRICE IS A GAME-CHANger

As technical traders, we follow price only, and when a new trend has been confirmed, we change our positions accordingly. We provide our ETF trades to subscribers. Recently, we entered new trades, all of which hit their first profit target levels and then eventually triggered their break-even profit stop-loss orders on their remaining position. After booking our profits we are now safely in cash preparing for our next trades. Our models continually track price action in a multitude of markets and asset classes as we track 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.

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Successful 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.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

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

Will Gold Price Rebound If The Economy Is In A Recession – Video

Chris Vermeulen of The Technical Traders talks with David Lin, anchor for Kitco News, about the recent price action of gold and the stock market. Looking at the daily charts of Gold, we can see gold has this big run-up when the news of war initially hit. Next, we saw gold pullback and sell-off. Since then, gold has stabilized and has flirted with both the resistance area of $2000 and the support area of $1890 indicating that it’s been trying to build a base and recover. The quarterly chart of gold remains very bullish.

Overall, we are in a bearish or distribution phase in the stock markets. Though some sectors are doing well, most stocks are going down creating a major divergence. We are in this phase where the market doesn’t know what it wants to do. The S&P 500 is below the 50-day moving average and crossing down below the 200-day moving average which is not a great sign. It is in this phase that the stock market is excellent at shaking people out. As panic rises, people get spooked, sell their positions, and the downtrend continues.

With all of this going on, The Technical Traders is in a full cash position. After an upside run of over a year, the long-term investment strategy, based on technical indicators, moved to cash about 6-7 weeks ago. The short-term swing trading strategy followed suit and closed out six winning trades in mid-April. Should we flip into a bear market, we will look into inverse ETFs to profit from the fall.

TO LEARN MORE ABOUT GOLD PRICE ACTION -WATCH THE VIDEO

TO EXPLORE THE strategies in the Total ETF Portfolio, PLEASE VISIT US AT The technical traders. You have 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.