What an exciting earnings week!
On Monday, I said this week would be insanely volatile. My exact words were, “up or down, expect some fireworks.” ?
The three major tech companies, GOOGL, MSFT and META, all beat earnings.
But while GOOGL and META shot up (about 3% and 9% respectively), MSFT actually fell about 3%.
Like I keep saying, this market is priced for perfection right now. Anything less is going to lead to sell offs.
If you’ll recall, I predicted that META move almost to the penny on Monday using options pricing. I’ll teach you how to do the same in a lesson next week.
The market always knows what to expect. Buying options through earnings is a losing proposition because I don’t have an edge.
That’s why I don’t do it.
This has been an exceptionally tricky time to trade earnings also. If you look at this chart, you’ll see that stocks that have “beat” earnings are trending lower while those “missing” are trending higher.
How are you supposed to trade this? ?
But the real surprise was yesterday.
After gapping up at the open, the market immediately sold off heavily from its highs.
This is precisely why I wanted to sit mostly in cash this week.
Here’s how my Bullseye Trade worked out that I laid out for my members on Monday this week (before the market opened.)
? Here Was the Plan
SPY and QQQ had been running in a mad bullish sprint since mid-March, and the market’s largest companies were reporting earnings.
So, I decided to keep my trading light and look at some other sectors.
Going long in a market so oversold always makes me a bit nervous.
Remember, institutions want to make money too. When they’re up big, they’ll eventually take profits and move their money somewhere else.
We call this “sector rotation.” Right now, I am seeing money flow out of tech and into “boring” sectors like energy, utilities and transportation stocks.
I wanted something not likely to be shaken by tech earnings so I could avoid the volatility, and knowing the energy sector was seeing inflows of cash, it made the perfect selection for me this week.
It costs less than the energy index XLE and moves twice as much. Trading it with a call would give me “leverage on leverage.”
That’s a lot of bang for your buck. If you get the direction right, of course.
Get it wrong, and it could really bite you in the ass.
I can’t stress enough. There are no guarantees in trading. Any trade can be a loser, so always size appropriately.
? Here’s What Happened
Just after the market opened, ERX roared to life. On a 5% stock move, the options I told everyone about made a very impressive move 46% higher from Monday’s alert.
Here is a chart showing how those options traded all week. Plenty of action here, and it gradually moved higher throughout the week.
I’m really not too worried. There’ll always be more trades for me.
The comments in the Alpha Room chat suggest that some subscribers got in early enough to catch the run.
Hopefully, it worked out well for them.
? Critical Lessons
Money rotates from one sector to another. Keep a watchlist of sector ETFs and check it regularly.
Leveraged ETFs like ERX can provide greater returns but with more risk. Other tickers for trades like this include SPXL, TQQQ, and LABU.
The best place to learn more about market dynamics each week, and get great trading ideas is from my weekly game plan.
Don’t miss out on the next Bullseye Trade dropping Monday before the open (click here to make sure you get on the list).
What if this week’s trade is another one like the COIN alert I sent back on June 17th?
*trading is hard, results not guaranteed
When you join, you’ll start to get my complete game plan on my top idea each week, just like this one on COIN I sent to members (all before the market starts for the week, of course):
You’ll also have unlimited access to our training library, trading ebook “How to Become an Alpha Hunter,” and alerts on trades I make sent directly to your Raging Bull app.
I have an incredible price on this right now – you would be foolish not to take me up on it right now!
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