WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
CHECK OUR TRADES ON OUR FACEBOOK PAGE OR HERE.


Posted by Martin February 04, 2019
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ADDING AT&T (T) SHARES


We closed our books last week revealing that we made over $2,600 in January (after quite slow start) which allowed us to invest some of the proceeds into good dividend growth stocks.

We use 50% of the options trading proceeds to buy DGI stocks according to our watch list. Whenever a stock is marked as a buy and we have generated enough income, we buy shares equivalent to $600 dollar investment. If we have more than $600, for example $1,300 dollars, we then buy (2) different companies (for example ATT and STX as we did in January 2019). If in our watch list, there are multiple shares marked as “buy” we buy the one with the highest dividend yield. Once a stock is purchased, it is marked with “X” so we do not buy it again once we make new money trading options. Then we continue buying all stocks in the list marked as “buy”. After all marked stocks are purchased, all “X”es are removed and we start from the beginning.
 

Today, AT&t met all our criteria to be purchased. So we bought 20 shares (added to our existing position):

 
BTO 20 T shares @ 29.86 debit
 

AT&T




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Posted by Martin February 02, 2019
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January 2019 trading and investing results


S&P 500  2,706.53 +199.68 (+7.96%)  Dow 30  25,063.89 +1,736.43 (+7.44%)  Nasdaq  7,263.87 +628.59 (+9.47%)
 

September results

I just finished reporting December 2018 and we are again at the end of another month. True, I reported December late.

January started off slow, but ended up well. Our accounts are up and recovering from last year slaughter. But the question is, are we out of the forest or is more carnage coming? Boy, I wish I knew.

In January, we continued trading successfully in our IRA account and made nice income of $2,661.00 in received premiums. In our other accounts, TDA and ROTH, we didn’t trade this month. We only managed opened trades to roll what was necessary to do.
 

We are posting our results:
 

 
IRA Equity:

IRA account equity
 

ROTH Equity:

ROTH account equity
 

TD Equity:

TD account equity

 

We post our trades on our Facebook page.

 
 

 · Dividend stock investing

 

Dividend investing is doing great on both accounts – ROTH and IRA. We keep using 50% of all options income and buy dividend stocks. IRA account keeps growing fast with new stocks being purchased every month. ROTH is more or less stagnant.

 

Here is a review of our accounts stock holdings:

 
Traditional IRA
Trading Results
 

ROTH IRA
Trading Results
 

TD account
Trading Results
 

January started very slow and at first, it looked like we will not be able to purchase any shares this month as we didn’t meet cash flow criteria to purchase new shares. However, two weeks before month end our income jumped up and it allowed us to buy a few shares to add to our dividend income portfolio.

In January 2019 we purchased the following shares:

 
IRA purchases:
Dividend growth stocks
 

It wasn’t easy to choose which stock to buy as many great sotcks in our watch list were indicated as “buy”. We decided to add STX in the end.

At the very last week of the month, our income increased enough to allow us more purchases next week.
 

We haven’t purchased any shares in ROTH or TD this month.
 

We keep spending 50% of our options trading proceeds to buy good dividend growth stocks using our screener to get a better entry into the stocks. Although capital appreciation is not our goal but a secondary target, timing the entry creates good results as our positions are mostly up. However, do not be too excited, any large selloff can temporarily send those stocks down again. It is a dividend income what matters to our portfolios, not the portfolio value and capital appreciation. It seems to be evident that using options to grow the portfolio is the right way to do.

 

 · Dividend Income

 

IRA dividend income
Trading Results
 

ROTH IRA dividend income
Trading Results

 

 · What’s next in the stock market?

 

I am unsure what to expect from the market in upcoming month. January 2019 was definitely one of the best months since 3 years ago. We went up +8%, almost 9%. We went up however, too much and too fast.

I wish this rally / recovery continues but, when reviewing historical charts, it could actually be bad for the market if we do not see any pullback or consolidation at the current levels. Many bearish charts from the past since 1955 indicated bad things happening in similar situation when the market hasn’t pulled back.

Thus the market is giving us mixed signals. I can’t say where we are heading from now.

Nevertheless, I held a believe through the entire 2018 year that the market selloff was just a correction and not a bear market. I still think, this is the case. Although we have mixed signals and we should expect any outcome in this market, it is starting to look like more and more as the previous bullish instances in the past:
 

Trading Results
(Source: CCM)
 

I recommend Chris Ciovacco’s (CCM) video who covers the historical charts and market behaviors and compares it to today’s market conditions to assess his equity allocation. I believe, his outlook can be helpful to assess the next market’s move and trade accordingly:

 

 

Happy Trading!




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Posted by Martin January 28, 2019
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Adding STX shares to our portfolio


We have a strategy to use 50% of options trading proceeds to purchase dividend stocks. In this market many of the stocks in our watch list are a “buy”, so it is difficult to pick one (I wish we had more cash to accumulate them all).

Originally, I wanted to add AAPL but we were buying in December quite heavily and now it is our largest holding in our portfolio. Moreover, APPL will be reporting earnings tomorrow. It may drop, it may jump. I do not know. But I decided not to take the risk of unknown and wait on AAPL.
 

Thus we added Seagate (STX):
 

BTO 13 STX shares @ 43.23
 

STX




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Posted by Martin January 27, 2019
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December 2018 and end of year trading and investing results


S&P 500  2,506.85 -253.32(-9.18)  Dow 30  23,327.46 -2,211(-8.66%)  Nasdaq  6,635.28 -695.26(-9.48%)
 

September results

December 2018 passed and it is time to once again provide a report on our trading and investing. The month turned to be the worst month ever. Historically, December was a good month with modest gains but this year, the markets lost almost 10% and that is unseen since 1930’s (correct me if I am wrong).

Of course these losses had impact on our accounts and our net liquidation values.

However, none of this draw-down translate into physical losses (sort of). As we rolled all trades down and away.

But to make sure we are all on the same page – rolling a trade means closing the old one at a loss and opening a new one which collects enough premium to pay for the loss. So, technically, we took losses in but offset them by new trades.

That’s why the net liquidation values of our accounts went down. as the new trades mature, though, the net-liq values will start rising again (which will be seen in January 2019, unless the markets crash again, as is widely expected these days).

However, all the 2018 mess in Wall Street had impact on our trading and we needed to adjust it slightly to reduce exposure of our capital.

 

What I will be doing from now on?
 

Overall, we will continue reducing our capital exposure and trading less throughout 2019 or until the market tells us where it wants to go. As of now, it looks like that we want to go up and that everything is rosy again. But historically, this can be deceiving. In all historical bear markets, this V shape recovery we are currently witnessing spelled out trouble without a low retest.
 

If that is the case today, we have the following possible outcomes:
 

1) V recovery will continue without retest nor consolidation – bearish.
2) V recovery will stall at or above 200 day moving average and then the market will consolidate – bullish.
3) We bounce down from 200 day moving average (or even above it), go down and retest December lows – bullish.
 

Without knowing what is going to happen I do not want to have overly large exposure in the market. Not that I am scared trading any outcome, I was able to navigate through both corrections in 2018 without losing my shirt, but I want to have my accounts manageable and too many open trades can make it difficult to adjust them should the market slump down fast.
 

So what are we going to do until the situation in the markets change?
 

In the IRA account:
 

1) We open only one weekly trade at a time with Friday expiration. A new trade can be opened only when the old trade closes. If the old trade is rolled into the next expiration and not closed a new trade will not be opened. You can follow the trades in our Facebook page.

2) We open up to two 45 DTE trades but with different time to expiration. We will be creating a ladder. This was our old theory we started doing a few years ago but abandoned and never finished. This means, we will open a 45 DTE expiration trade one week and then a second 45 DTE next week.

3) After a trade is open we immediately place a closing GTC (good till cancelled) trade for 50% profit.

4) We open a new 45 DTE trade only when the old trade is closed. If an old trade is rolled or otherwise kept open no new trade can be opened.

5) A new additional 45 DTE (above 2 contracts mentioned above) trade can be added only when BP is higher than the cash management limit allowed.

6) We will keep managing old open trades already in the account to close them successfully as winners.

 

In the ROTH account:
 

1) There will be no new trading in this account. Only managing old open trades. And saving more cash for trading.

 

In the TD account:
 

1) There will be no new trading in this account. Only managing old open trades. And saving more cash for trading.
 

It is really time to stop the madness and reckless trading I did sometimes in my accounts and bring it back to boring strategy and discipline.
 

We are now publishing our tracking of our accounts for the entire year. If you are interested, you can review it here:

  • Review our IRA account 2018 trading and investing data.

IRA Equity:
IRA account equity
 

  • Review our ROTH IRA 2018 trading and investing data.

ROTH Equity:
ROTH account equity
 

  • Review our TD Account 2018 trading and investing data.

TD Equity:
TD account equity

 

We post our trades on our Facebook page.

 
 

Here are the entire 2018 year trading results:

 
Trading Results
 

 

 · Dividend stock investing

 

Dividend investing is doing great on both accounts – ROTH and IRA. We keep using 50% of all options income and buy dividend stocks. IRA account keeps growing fast with new stocks being purchased every month. ROTH is more or less stagnant.

 

Here is a review of our accounts stock holdings:

 
Traditional IRA
Trading Results
 

ROTH IRA
Trading Results
 

TD account
Trading Results
 

In August we purchased the following shares:

 
IRA purchases:
Dividend growth stocks
 

We haven’t purchased any shares in ROTH or TD this month.
 

We keep spending 50% of our options trading proceeds to buy good dividend growth stocks using our screener to get a better entry into the stocks. Although capital appreciation is not our goal but a secondary target, timing the entry creates good results as our positions are mostly up. However, do not be too excited, any large selloff can temporarily send those stocks down again. It is a dividend income what matters to our portfolios, not the portfolio value and capital appreciation. It seems to be evident that using options to grow the portfolio is the right way to do.

 

 · Dividend Income

 

IRA dividend income
Trading Results
 

ROTH IRA dividend income
Trading Results

 




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Posted by Martin January 15, 2019
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Realty Income (O) Announces 3% Dividend Increase


Realty Income Corporation (NYSE: O), The Monthly Dividend Company┬«, today announced its Board of Directors has declared an increase in the company’s common stock monthly cash dividend to $0.2255 per share from $0.2210 per share. The dividend is payable on February 15, 2019 to shareholders of record as of February 1, 2019. This is the 100th dividend increase since Realty Income’s listing on the NYSE in 1994. The ex-dividend date for February’s dividend is January 31, 2019. The new monthly dividend represents an annualized dividend amount of $2.706 per share as compared to the current annualized dividend amount of $2.652 per share.

That makes it 26th consecutive year increase of the dividend ranking this company to a rank of a “dividend champion”.

Our calculated fair value for this stock is $64.15 and at a current price $64.77 and average 5 year dividend yield 4.49% the stock is overvalued and ranked as a hold.




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Posted by Martin January 11, 2019
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Boeing raises dividends by 20.18%


Boeing (NYSE: BA) has an impressive dividend growth rate of 27.50% (5 year annual average). And in January 2019 it increased the dividend by 20.18% from $6.84 annual dividend (1.710 quarterly rate) to $8.22 (2.055 quarterly) dividend rate payable in March 1st, 2019.

Boeing is a dividend challenger with 8 years of consecutive dividend increases and in our watch list it is currently listed as a buy at the current price of $352.61 a share.

Our calculated fair value is $391.36 a share, average 5 year dividend yield is 2.28 a share (current yield 2.06%), and annual sales at $98.15 B.




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Posted by Martin January 10, 2019
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Abbott Labs raises dividends by 14.29%


Abbott Laboratories (NYSE: ABT) raised their dividend by 14.29% to $0.320 a share with ex-date on January 14th, 2019 and pay date on February 15th, 2019 from previous $0.280 a share dividend rate.

This makes ABT a dividend challenger with a track record of 7 consecutive years of dividend increases. However, in our watch list, the stock is still not a buy despite the recent market correction. The stock still seems overvalued at the current price of $69.08 a share.

Our calculated fair value is $30.30 a share, average 5 year dividend yield 2.05%, there fore we rank this stock as a hold.




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Posted by Martin January 10, 2019
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Johnson & Johnson boosts prices on top-selling drugs


  • Joining a number of other drugmakers this month, Johnson & Johnson (NYSE:JNJ) raised prices on about two dozen prescription drugs today, including top sellers Stelara (for psoriasis), Zytiga (for prostate cancer) and blood thinner Xarelto.
  • Most increases were in the 6-7% range, Reuters notes.

  • The company says average list price increase on its drugs will be 4.2% this year, but it expects net price it receives to drop after rebates and discounts. It says it doesn’t plan to raise prices on any more drugs this year.

  • Shares are down 0.4% after hours.

Source: Seeking Alpha




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Posted by Martin January 02, 2019
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Hedging credit spreads


Recently, well, in 2018, I started using hedges for my credit spreads. I wasn’t using hedging much in the past because I wasn’t sure how to use them properly and how to manage them. So I avoided them.

Thus 2018 year was somewhat revolutionary to my trading as I learned using them. So the old options wolves will be probably laughing at me right now sharing something what was very obvious to them… but not always to me.

And apparently, not all traders are able or know how to use hedging.

To me, as I mentioned in my previous post, I was afraid that by opening a hedge, which is a debit trade, I can lose money in a decaying instrument such as options and it cannot be repaired. I was wrong.

 

 · A recently discovered beauty of debit spread hedges

 

One reason I am no longer afraid of debit spreads is my recently discovered way how to salvage a trade. I briefly mentioned it in my previous post but I think I need to ad some visual explanation.

Let’s say I have a credit put spread open and I see the market tanking and I am afraid that the credit spread can get in the money. I decide to place a hedge. The hedge can either be below the current put spread or at the money. Recently I used at the money or near the money spreads. Adding a spread would then look like this:
 

Placing a hedge trade
 

As you can see, this hedge would cost me $2.25 debit.

If I am correct and my existing credit spread (not shown on the above example) really gets in the money, then I will be able to close the new debit spread for approx. $4.50 credit making a nice profit of $2.25 dollars. On the other hand, the credit spread will also be in the money but due to a time value still left in the spread I can close such spread for around $3.00 a contract. In this case, my loss is only $0.75 per contract instead of a full $3.00 loss. I would gladly take $75 dollars loss over $300 dollar loss.

But when I see the market really falling I usually open more than one debit trade so my collected credit is larger and offsets more losses.

Of course, the point here is not to wait until the existing credit spread is in full loss (which would happen at expiration).
 

But what if I am wrong and the market starts rallying again?
 

And here is what I like with those debit spreads. If I am wrong and the market reverses and starts rallying, I can convert the debit spread into a credit spread. Of course, this adds risk to the account and it consumes buying power, so you need money to be able to trade this. But I like it and I like to play it this way.

Reversing the debit spread into a credit spread provides two ways:
 

1) rolling the short strike
2) rolling the long strike
 

If the market starts moving up fast and strong, I roll the short strike. If however, rolling a short strike would result rolling it into money, then I decide to roll the long strike. This depends on how confident I am with the market move, how much time is left, etc.

And here is a picture of such a roll:
 

Placing a hedge trade
 

In the above example, let’s say the market goes up and shows strength and I do not have too much time to expiration. So I decided to roll the long strike down by selling the existing 2510 long strike and buying a cheaper lower 2500 long strike. In the example I would collect about $4.00 credit making it already a profitable trade. Of course in the real life this would result possibly in a lesser credit, possibly around $3.80-ish level. So for the sake of this example, let’s use $3.80 credit.

In this example, the overall trade balance would be $1.55 credit. Risk would be $3.45 which would also be your buying power requirement.

This would be the resulting trade:
 

Placing a hedge trade
 

If I am right with this adjustment, then I can close the trade for 0.10 or 0.05 debit and be out with a profit. So no matter what, if played well, these adjustments can help minimize losses or make a profit. It is almost a win-win situation.

 

 · Butterflies

 

September results But, what if I am wrong again? And in today’s market it is quite often. Let’s say I convert a debit trade into a credit trade and the market starts falling again (like today). Then I use a butterfly to protect the new trade.

In this case I place back the original debit spread. Now I would have 1 lower long put contract, 2 short put contracts and 1 higher long put contract.
 

Now I will have the following trade:

+1 SPX 2500 put
-2 SPX 2505 put
+1 SPX 2510 put
 

Here is an example of a butterfly on my existing call spread which I added today when the market started rallying. It was originally a debit call spread as I thought the market would rally (finally after the end of year carnage). Well, the market turned down and the debit spread started losing, so I reversed it into a credit spread. Unfortunately, the market reversed again and rallied (and tomorrow it will probably fall again thanks to APPL slump). So I converted the trade into a butterfly:
 

Placing a hedge trade
 

Now the trade is neutral. I can let it go and do nothing. If we use the math of our put trade example this is what the balance would look like:
 

1) we opened an original debit put spread for -2.25 (debit)
2) we converted the debit put into a credit put spread for +3.80 (credit)
3) we converted the credit trade into a butterfly for -2.25 (debit)

Overall loss would be -1.50 debit if we do nothing. Still better than a full loss of $425 dollars if we let the original credit trade end in the money at expiration.

I usually wait for this to play out and if I see the market keep falling then I most often close the debit part of the trade for larger credit, for example $4.50 credit and open a new one lower than the original credit trade. That would cost +/- $2.20 debit again but if the market keeps falling than I would be able to close it again for a profit and the collected credit would allow me to roll the old credit into the next expiration and convert into call spread or roll into put spread and lower (and I usually add a credit call spread converting into Iron Condor.

As of now I am able to liquidate bad trades with minimal loss or even with profit but I am still playing with these adjustments to see how else I can improve those adjustments to preserve capital more and eliminate bad trades without a big damage I endured in January 2018 when I decided to close my bad trades at TD account because I didn’t know how else I could salvage those trades. Now I kinda know.

Of course, I do these trades in short expiration trades only and as a hedge trades. I do not use them as a main mean of profit as I do not feel very comfortable to trade it for a profit and I do not want to keep opening trades and reversing them back and forth. But that may change too in the near future. So far, I am happy with the results. Instead of rolling bad trades into future, I can keep closing them for minimal to no loss.

 

 · Trading SPX in lieu of stocks

 

Some of my followers told me in the recent past that I have deviated from my strategy of trading puts and calls using stocks as underlying security and that I now trade SPX only, which is not why they followed me in the first place.

Yes, I must admit that lately (pretty much the entire 2018 year) I was trading SPX exclusively. But that was not because I abandoned stocks. The reason was a more pragmatic one. When the market slumped in January – February 2018 some of my stock positions got immediately assigned and I collected a full loss on those positions.

Even today, I got assigned to a stock position which had expiration 172 days from now (!!!) that is almost six months from now! And yet I got assigned. Who in their right mind would ever assign a stock with so long expiration away? If long DTE cannot protect me from early assignments, then I do not want to be in American style options for now.

To avoid early assignments I decided to convert those trades into SPX trades. That means I closed in the money stock trades and opened equal SPX trades. They were equal in the buying power requirement, expiration, and collected credit completely offset the debit needed to close those stock option trades. So it was literally a one to one swap. Now I can sit on those trade until the last 5 minutes to the expiration without being worried of early assignment and I have a plenty of time to decide what to do next. And with the new debit spreads strategy it seems I can be unwinding those trades without big losses. Once the market calms down and decides on a direction it wants to go, I will most likely return back to trading stocks again. But it is too risky as of today.
 
 




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Posted by Martin January 01, 2019
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33% draw down in 2018


New Year
 

2018 year turned out to be volatile and as I expected all our accounts saw a quite large draw down.

But I am not grumpy about it nor regret anything I have done and the way I traded, except on my TD account. I now regret closing bad trades in January 2018 and collecting a large loss instead of managing those trades. Managing those trades I believe, our TD account would be in a lot better shape.

2018 brought a great opportunity. Increased volatility allowed us to create great premiums income. I can’t believe, we earned over $72,000 dollars in 2018 in options premiums. So a draw down is insignificant compared to the income. As long as I can keep those trades open and manage them, there is no worry about a temporary net-liq loss. It will recover as quickly as the market.

And one more thing I learned this year – hedging. I still do not feel very comfortable about hedging as I still see it as possibly losing money but lately, I do it very often and it seems I can preserve the capital. Thus there are two outcomes – make money or preserve existing funds but no loss (or very minimal).

For every put spread or call spread of an Iron Condor I have open I use debit spreads as a hedge.

If I see the market going down (or up) I buy a debit spread for the existing credit spread converting the trade into a butterfly or just add higher debit put spread (or lower debit put spread, depending on the market). These additions then allow me to close an entire busted credit spread and debit spread for a small credit and thus profitable or just allow me to roll the busted credit spread lower using proceeds of the hedge to help offset the cost.

In this whipsaw market I use the debit spreads as hedge only. I tried to use it as money making tool but too often I ended up with a wash or a small loss, many times converting the debit spread into a credit spread.

And that is another benefit of debit spreads. If you are wrong, you can always salvage the trade converting it into a credit spread by reversing either a higher long put into a lower long put or lower short put into a higher short put:

1) original debit put spread:

-1 SPX 2470 put
+1 SPX 2475 put

Converting the short put up into a credit spread:

close -1 SPX 2470 put
leave +1 SPX 2475 put
open -1 SPX 2480 put

Or converting long put into a credit spread:

leave -1 SPX 2470 put
close +1 SPX 2475 put
open +1 SPX 2465 put

All above mentioned strategies add risk as normal credit spread and they will require buying power. So in order to do this, you must be sure that your assessment of a market direction is correct. In a whipsaw market this can be tricky.

But debit spreads can add a significant value to the portfolio. Therefore in 2019, I plan using them a bit more often.
 

What’s next in 2019?
 

My strategy for 2019 will be same as in 2018 with a few modifications.

I will keep actively trading in IRA account and use 50% of all options trading proceeds to buy a high quality dividend growth stocks. And if we see the market selling more in 2019 (and I expect the next 6 months of more selling) it will be a great opportunity to buy more cheap dividend growth stocks.

In our TD account I will not be trading as of now. Only managing open trades. I will be saving as much as possible to raise capital. Or account equity is over $27,000 but it is low. It is not enough to trade successfully. It is my opinion and experience. Trading such small account is stressful and I do not have a luxury of being stressful. Thus the entire 2019 year I plan on saving money and I start trading again once free buying power increases above $3,000, then I will be opening one credit spread (with hedging) and max. risk of $500 per trade for every $1,000 of free buying power above $3,000. Majority of our assets are in stocks or open trades. I do not plan on liquidating the stock positions to free BP nor closing open options trades as these would result in a loss. Thus saving more is the only option and plan here.

The similar situation is in our ROTH account. This account is also significantly under-capitalized. I will do the same strategy as for TD account and will be saving first.

In my next posts, I will write a review of December 2018 and overall 2018 year review. This is just a quick review.
 

Stock market 2019?
 

I am still not convinced that we are heading into a recession. The economy is still very good and solid – low unemployment, low inflation, still all time high consumer confidence (although slowing), all time high earnings, retail sales, manufacturing orders and production. Markets do not fail in this economy. The economy must show signs of troubles as it did many times before.

But this doesn’t mean that it cannot change. Trump’s trade wars, ignorance, dilettantism, an no economic policy can damage this economy (and we are already witnessing this to be happening). However, until we see the economy showing signs of trouble, we need to be open to a possibility that this market is just driven down by fear and needed correction.

 

 

This market is somewhat similar to 1962, 1987, 1990, 1998, 2002, 2011, and 2015 market. If this observation is correct and history repeats itself (in a similar manner) then we may expect additional up to 6 more months of selling before this market settles, bottoms, and starts rising again.

But time will show, as always. Until then, manage the trades to keep them open and close them as winners.

Happy New Year!




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