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Posted by Martin August 03, 2020
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Markets keep going higher, again


Account Net-Liq: $6,801.82
SPX value: 3,294.61
Shiller PE: 30.70

 
 
The problem of all bears out there predicting the second crash is that it is their wishful thinking and prayers. They again look at metrics such as PE, or other valuations and completely ignore FED and that those metrics do not work when FED is involved.

S&P500 continued higher today despite anything you may think and wish for. An interesting thing is that it broke the uptrend support line a few days ago (in fact two support lines) making it all look like a failed breakout on a daily chart:

 
SPX 2020 0803
 

Yet, the market started hugging the belly of the trend and keeps moving higher. But, if we look at longer-term daily and weekly charts we see a different picture all of a sudden. We are near the gap which happened in March 2020. I believe, this gap will have to be closed before we see any further action.

We are also near the resistance and pain area where many weak hands may want to unload their positions unless they did it all in March when they panicked and sold everything. If this is the case, we may see a new ATH in making here. We had 2 months of consolidation of the previous gains – that is good for the market no matter what you think of it. We recovered the majority of the losses and now we consolidated those gains! And recently, we broke up from the consolidation pattern. We re-tested that breakout – also a good thing for this market. And recently, we continued higher:

 
SPX 2020 0803
 

Of course, in this “pain” area, we may see a lot of choppiness and war between bears and bulls but it seems, bears have a weak hand here.

 
Hedgeye
 

The weekly chart is even more descriptive in where we are heading next. And, in my opinion, it is not down.

 
SPX 2020 0803
 

You can choose and decide to fight this market and short it but it would be a painful fight. Short term, yes, we may see some pullbacks but medium to long term, we are going to ATH.

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Posted by Martin July 26, 2020
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Was this a blip?


Account Net-Liq: $5,534.40
SPX value: 3,215.63
Shiller PE: 29.97

Was the drop we saw last week a blip caused by the coronavirus and employment data no one cares about anyway anymore?
It looks like it. As Jani said in his post, this may be just a wobble, bulls no longer care about anymore and we need more to shake this market. True, all we saw was old news. Everybody knows what was going on and that the virus is here, it ain’t going anywhere, we have rising cases but all that will come to an end at some point in the future. Nothing surprising. No new black swan anymore.

Thu futures are up as of now (11:00 pm MT) 0.48%. Will it last until the opening bell? And more importantly, during the entire trading session? I wish we stayed where we are and went slightly higher during this week but not too much. I have an SPX trade which is set to expire this week (well, if we stay in this range and above 3210 by Friday). I have to wait to find out.

SPX 2020 0726




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Posted by Martin July 26, 2020
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Problems with valuations


Account Net-Liq: $5,534.40
SPX value: 3,215.63
Shiller PE: 29.97

People keep screaming: “The market is overvalued!” Maybe. Investors use all sorts of metrics and formulas to calculate the valuation of the market. They use PE, Shiller PE, Buffett Indicator (typically a Wilshire 5000 Total market cap / GDP ratio) and according to all these metrics, the market is overvalued.

For example, whenever the “Buffett indicator” goes above 113% the market is considered overvalued, and with the current reading at 153% it is considered significantly overvalued:

Valuations 2020

With today’s ratio at 152.3% the market is significantly overvalued.

But, there are a few problems with all these metrics. First of all, they have no predictive value, so saying “the market is overvalued so I will wait for better valuation”, can cost you a lot of precious time and money. The market can stay overvalued for years or get even worse before it corrects itself.

Second, these metrics became obsolete the very first moment the FED started messing things up and got itself involved with fixing the economy and the stock market. The day, FED started pouring trillions of dollars into the economy and the market, the indexes got completely detached from reality.

When you look at the recent correction when the markets shed 40% of its value, it became just an insignificant blip on the market valuations. Compare the correction in 2000 – 2003 and 2008 – 2009 with 2020 on the chart below. You won’t even notice it!!

Valuations 2020

In fact, there is no blip!

That’s how ballooned the market is. Trillions of dollars in QE, FED’s bond-buying (and now even junk bonds purchasing), all that contributed to the market being where it is today.

So, what should you do?

In my opinion, definitely not waiting! People are selling their stocks, waiting aside, and speaking about the overvalued market. Many are just simply waiting for a better valuation. But, here is a problem.

When was the last time, this market was overvalued this high? It was in 2000, it was 20 years ago. It took almost 9 years for the market to get strongly undervalued. Back then, the market lost 70% of its value and you can clearly distinguish that value drop on the valuation chart. In March 2020 the market dropped 40% and it was a small blip that quickly recovered. And even that, people refused to buy in the market because the valuation was too high. With all that said, waiting may cost you 10 years or even 20 years of time waiting. And time, my friends, time, is what we do not have. Once we lose that time, we can never go back and fix our errors.

Valuations 2020

What you gonna do? Waiting can be extremely costly, investing now may be expensive.

The only way out of this situation I see feasible is to keep investing. Keep buying high-quality dividend growth stocks, or if you do not feel comfortable with individual stocks, keep accumulating ETFs. Buy index and sector funds, such as SPY, XLE, XLY, XLU, etc. There is a great website Deep value ETF accumulator which posts a set of ETFs and their valuations. You can keep buying those which are considered undervalued, or even in “crash” mode and keep investing and rotate to those undervalued ETFs. They post the charts every week, just follow those charts and keep buying.

Or, if you like individual stocks, as I do, pick the dividend aristocrats and start investing in them. Here is a set of stocks I like to accumulate:

Dividend aristocrats accumulation

But, hey, we just said, that the stock market is overvalued, in fact, extremely overvalued! And now, we should be buying these stocks?

Yes, we should be buying these stocks, but also monetize them. Keep buying these stocks until you reach 100 shares (in case you do not have enough money to buy 100 shares outright) and once you reach 100 shares, start selling covered calls. Lower your cost basis. Keep doing it every month. Keep a record of your initial cost basis and premiums you receive from the covered calls. If you buy a stock at $34 a share and you sell a covered call for 0.34 premium, your cost basis would go down to 33.66 a share. Repeat this every month. Collect dividends and premiums and keep track of your cost basis. One day, your cost basis will reach zero. And once your stock reaches zero, you own the stock for free. And in this case, who cares about market valuations? Nobody! I don’t! And if you happen to get assigned and your stock is called away, then start selling cash-secured puts and collect premiums. And keep track of those premiums because once you get assigned and you buy back 100 shares of your stock, the premiums you collected in the meantime can be counted against your cost basis again.

That is the only way, I see, as a feasible method of going around the high market valuations. The FED will stay and it will be involved in propping the markets and economy more and more. The old metrics will no longer work, new will develop. And you have to adapt to the new reality too. And yes, keep buying not only today when the market is high, but also when the market crashes (many missed that boat and now pray for another crash which may not come in the next 10+ years).




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Posted by Martin July 25, 2020
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Dividend stocks accumulation list July 2020


Account Net-Liq: $5,534.40
SPX value: 3,215.63
Shiller PE: 29.97

I updated my list of dividend stocks I plan accumulating this year (or in fact any year, as long as I accumulate them). My goal is to reach 100 shares of these stocks. Once I accumulate these shares, I will start selling covered calls to boost income from these stocks.

SPX 2020




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Posted by Martin July 24, 2020
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Markets losing it again, good or bad?


Account Net-Liq: $5,339.34
SPX value: 3,215.63
Shiller PE: 29.97

Markets continued down again today, as of this entry, S&P was down 0.84%. Normally, I would be OK with it if I didn’t have the SPX trade trying to get rid of it. I had to roll the puts down this time. But I decided to keep the calls up. I will eventually roll the calls down later. I still have 7 days to expiration and I am afraid that I would roll the calls down and the market reverses and rallies hard back up and I will be in trouble with the calls again. So I deiced to wait for now and keep rolling the puts lower only. I hope, this will work for me.

IWM trade is in good shape, the covered call will expire today and on Monday I will be able to sell a new CC.

The market closed down for the second consecutive day. It still may mean nothing though but it may turn into an ugly selloff next week if bulls give up. I hope, they won’t. The last few hours of trading was somewhat promising that there were buyers to be found out there. Nothing spectacular, but promising.

SPX 2020

SPX 2020




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Posted by Martin July 23, 2020
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What I was worried about happened


Account Net-Liq: $5,287.47
SPX value: 3,235.66
Shiller PE: 30.16

In the morning that market rallied. So I rolled my SPX trade higher again. And of course, but the end of the day the market tanked down by -40.36 (-1.23%). And, of course, because I was rolling my puts higher too, to recoup some cash, now these puts are in danger. Not completely yet, but if this starts slipping into something more serious, the trade will be busted again. What a joke. I hope I will be able to finish these trades soon and be done with it Then I will only trade my strategy of accumulating assets and selling options around those assets. No speculative trading whatsoever!

Futures are down 0.27% as of this entry. The question is, will it reverse tomorrow or not?

SPX 2020




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Posted by Martin July 22, 2020
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The market seems to ease the rally


Account Net-Liq: $4,976.45
SPX value: 3,276.02
Shiller PE: 30.53

The market seems to finally lose steam on its rally and today, it created an indecision candle and it even went red. True, when I write this entry, it is still too early in the morning and everything may change by the end of the day. I have rolled my SPX trade higher though to make sure the trade is centered on the market. I had to roll the put side higher too to bring in some cash so I hope we won’t crash or anything. We only have 9 days to expiration and I really hope I will be able to expire this trade.

I also opened a new trade against PINS (put butterfly) so hope it will work in my favor too.
IWM works in my favor so far. We have 2 days to expiration and the covered call seems to get expired worthless this Friday.
XLE trade is also showing a profit but not as strong as I would wish for. But, there is still plenty of time.

And as I suspected, the market didn’t ease anything at the end and rallied even higher than the days before. Very frustrating. If this continues, I will have to roll my SPX trade up again. But doing so, I will have to roll the put side up and I am afraid that it may backfire. I still have 9 days to go to expiration and in this crazy market, anything can happen.

SPX 2020




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Posted by Martin July 21, 2020
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So many sudden gurus


Account Net-Liq: $5,259.26
SPX value: 3,257.30

It is astonishing to see how many sudden investing and trading gurus popped out on social media, mainly on Youtube. It reminds me of my enthusiasm in 2008 when I decided to post about the market and my newly achieved knowledge of the market which no one ever knew about. I must have looked stupid to the people of “have” trying to tell them what stocks to invest to because I was the only one there who knew.

How laughable I must have looked like to them! Well, I guess, exactly as these new brewed gurus look laughable to me today. When I browse through my Youtube feed, I see so many of them providing analysis, predictions, forecasts, crash predictions… all a joke of newly bred gurus. But, as an old adage goes, “if suddenly a plumber becomes a market wizard, it is time to bail out”.

Are we seeing this today?

And many of the analysis, predictions, news, forecasts… all these are just an empty blabbing. I can’t watch many of them beyond the first few minutes.




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Posted by Martin July 21, 2020
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The market is ripping it off rallying again


Account Net-Liq: $5,259.26
SPX value: 3,257.30

Another day with large gains and I do not see where do they come from. Another frustrating day where the market goes up 1%+ or down 1%+ and sometimes more. Where are the days where the market went up and down 0.30% and we considered it a huge gain?
I had to roll my SPX calls up again, but it was costly this time. It needed about $0.95 debit to roll it higher. So I decided to roll the put side higher too. Not much confident about it because if this market tanks again I have lost all the cushion built up recently. But, on the other hand, rolling everything down is favorable, at least it used to be. Only 10 days for this SPX trade and I may have saved it… The question, of course, is at what cost?
Other trades are doing well so far. I like my IWM performance, making nice profits already. XLE trade seems to be working well too. I hope, these trades will keep perform and make cash needed to grow the account.

I really wish all this picks up and I build my passive income really fast.

SPX 2020




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Posted by Martin July 20, 2020
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The market rallies again


Account Net-Liq: $$5,340.51
SPX value: 3,251.57

It is becoming quite frustrating that the market rallies again. It is weird. Everybody is pessimistic, everybody says that we are in a recession, we have new COVID-19 spikes and everybody is worried, yet the market rallies hard?!?

Did everyone forget about the COVID? How come we sold off hard in March during the first outbreaks of this (in my opinion) fake virus bogus and today, when everyone is, AGAIN, talking about shitting down the economy AGAIN, and the market doesn’t bother about it anymore? Why no one is scared today?

I opened a few new trades using XLE butterfly and had to roll my SPX call spread higher again to keep it away from this raging bull no one believes in. It is totally outstanding that it completely defies anything I keep hearing and reading out there. Well, I guess, the best approach is to take it as it is and ignore all the naysayers.

Last night I watched Linda Raschke’s video on Stock charts. I didn’t finish it as it was too late, but she pretty much predicted that this rally could continue just because of this pessimism, too much money out there sitting on the side. She pointed out M1 money supply spike but the money has not been used to invest so the supply is sitting somewhere… not in the market. This supply will be used to pour more money into the fire one day propping this market higher. I agree with this logic, though.

It is really outstanding how strong rally SPX shows. But it seems, this is driven by only a few tech stocks as almost all my other holdings are losing big. IWM is also losing (-0.33% down as of now). Everything is red but SPY (SPX).

It is tech stocks propelling SPX up. It is crazy:

SPX 2020

As you can see, IWM is in poor conditions compared to SPX. Most of the stocks are red:

SPX 2020

Here is a picture of today’s rally. I had to roll my calls up again and it seems I will have to roll them up again tomorrow:

SPX 2020




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