Posted by Martin March 21, 2018
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Markets survived FED’s hike, sky didn’t collapse…


S&P PanicFED raised rates today and signaled more to come (although as not as many as spooked investors feared) and nothing happened. The world didn’t end, sky didn’t fall, the Universe didn’t collapse, and spooky investors can finally move on and fear something else.

Today, I again was busy with other stuff and couldn’t do trading. Only two open trades closed for 0.05 debit (with almost a full profit). When I open a trade and that trade executes, I immediately place a closing trade as GTC order for 0.05 debit (or as per our strategy) to automatically close any trade once the options price reaches the limit. Then I can forget that trade (sort of).

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Posted by Martin March 20, 2018
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Markets held 2700 support today


S&P PanicAs posted earlier I identified a support at 2700 level (or around) and today, the market held that level although the trend was gloomy. I expected more turmoil in regards to FED (which is still coming on us) and Trump’s tariffs (this still can come back and spook the investors who already crapped their pants enough this last two weeks).

For our funds, trading was slow today. I was busy with other things and also wasn’t in mood of trading. So I decided to skip it. I did only a handful trades today, and I bought a new dividend aristocrat to our portfolio

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Posted by Martin March 19, 2018
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Nice selloff today! I missed it!!


S&P PanicToday we saw another fairly large sell off. If we measure it by 2017 market standards of doing pretty much nothing but going up.
 
 
 
 

  1. Today’s decline was just a technical pullback led by a previously overbought tech sector. S&P 500 still making higher highs and higher lows.
     
  2. Potential trade war isn’t as bad as it seems.
     
  3. FAANG accounts for 26% of the NASDAQ. Not as bearish as it sounds.
     
  4. YoY change in Industrial Production is still trending higher. Medium-long term bullish for stocks.
     
  5. Housing Starts are still trending higher. Medium-long term bullish for stocks.
     

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Posted by Martin March 18, 2018
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Weekly Results – Mar 16, 2018


TrumpLast week was down. The markets were losing ground the whole week except on Friday we regained a little bit of support and relieve. With Trump shooting himself into a foot, do not expect much better market performance next week.

Here are the last week’s results to review.
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Posted by Martin March 17, 2018
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A logic behind trading 0 – 1 DTE spreads with SPX underlying


Trading rulesIn our trading group a trader posted this question:

 
“Why you might do a 0-1 DTE trade on SPX vs a longer period such as 15-30 DTE…along with the associated logic of the strike selection.”
 
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Posted by Martin March 15, 2018
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Too many predicting bear market


Sell!Everybody is going bearish these days and our economy and politicians are not helping much. Retails saw three consecutive months of slowing sales and tomorrows data will probably help sinking this market lower. Trump fired another of his advisers (as I read on Investing.com: making this Presidency a joke) and futures sold off.

However, among all this weakness, the market overall still holds 50 day MA and it still is on its path higher. But practice caution as all this may change quickly (as quickly as tomorrow).
 

Even with all the weakness and selling we made great income today. Most of the time I rolled put spreads away and lower and kept selling call spreads. I still must exclaim: I love this volatility as it brings a lot of opportunity to make money. The catch is, many of the trades are still open and all premiums we collected so far can evaporate if we will not manage those open trades properly.
 

More and more stocks are becoming cheaper these days and as more selling hits the market more good quality stocks will be cheaper to buy. I stick to dividend growth investing strategy, use 50% of the options trading proceeds to buy dividend aristocrats. I am happy to see this weakness in the market as I can now buy stocks such as Boeing (BA) which is shown as undervalued. Check our list of stocks our system indicates as a good buy.
 
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Posted by Martin March 14, 2018
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Market weak but still on path higher


The market was weak today again. Spooked investors afraid of Trump’s trade war, slowing economy, technicals lagging, retails lagging, inventory too high, supplies too low, dollar too weak, yen too strong, infrastructure this, cash flow that, debt too high, oil higher today but lower tomorrow, and who knows what else which will be totally unimportant tomorrow and forgotten next week.

It is stunning how short time frame obsession of Wall Street is.

But it is good for you no matter where you are. If you are an investor, you must love this weakness as your stocks are cheaper to buy. I have my own watch list of stocks I want to buy using 50% of my options trading proceeds and I love it seeing high quality dividend stocks getting cheaper so I can buy them!

For example Boeing (BA). For several last weeks, Boeing was a Wall Street’s darling and everybody was praising the company and its stock. Until today. Wall Street forgot everything and the stock is being sold by those same people who loved it just a few days ago.

And just today, my fair value calculation showed this stock as undervalued!
 

Boeing’s stock sinks again, heads toward biggest weekly loss in over 2 years
Boeing tops Airbus on deliveries in February
Boeing Is Still A Buy, This Is Why
Boeing expects more 777 Freighter orders as air cargo market surges

 

One of the largest military/civil aircraft manufacturer in the entire world and Wall Street is obsessed and spooked about a temporary event of tomorrow! I do not know what about you but if I decide to buy Boening, it is for the next 20 years! Will this company prosper in the next 20 years? Will it keep paying and increasing the dividend in the next 20 years? Or will it go bust? Of course, everything is possible. Maybe Boeing will go belly up tomorrow and Airbus will take over!

 

As a trader I love volatility! Anytime this market goes up and then spooked investors go and sell it all down, I am happy about it. You know why? Because I make a few bucks riding this market up and down.

 

However, despite the weakness, this market is still on its path higher. We are still trending higher and creating new higher highs and higher lows. Today, we also re-tested a 50 day MA. Will it hold? Maybe. But from a technical perspective, we are probably heading lower. Possibly to 2705 level.

 
S&P bear market
 

Honestly, I would prefer the 50 day MA to hold, but if the stock market goes lower, so be it. I will be converting my put spreads into call spreads and ride the market down.

 

 · Trading activity today

 

Last night, when a new member of our trading group told me that I was no longer in compliance with my own rules, I decided to stop trading and reduce my exposure to SPX and AMZN which lately became my significant position.
 

Here are the results of my decision:
 

A summary of opening and closing trades.
(balance + $417.00)
 

Well, I just did adjustments to existing trades, either closing them or adding call spreads as needed to improve cost basis and allowing me to roll those trades which were in bad shape
 

S&P bear market

 

 · Dividend stocks to buy

 

Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/14/2018):
 

AGNC
AWK
BA
CVX
HD
KMB
MCD
OXY
PG
XOM
 

What are your expectations of this stock market? How are you preparing yourself for a potential bear market?
 




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Posted by Martin March 13, 2018
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There is no chaos in WH… it’s only Trump looking for new talents


This morning the stock market opened higher and rallied… until we found out that Trump was looking for new talents by firing Tillerson. But don’t worry, it is not a chaos… it is a new energy!

 
Trumpet
 

However, the stock market didn’t like the fact of Trump reducing the “best collection of talents since the Third Reich” and it started slipping. Later on it sold off and the market lost -0.64%.

In the morning I opened a few trades with SPX underlying which turned against me, so I had to roll them while also opening new call spreads. Some call spreads got closed for 0.05 debit making great profit on them. I then re-opened those trades again. Most of the trades have tomorrow’s expiration so let’s see how they would play out tomorrow.

Knowing when to act (and adjust a trade) is the hardest part and difficult to explain. Many times I do not know myself and there are no set rules. It depends on the market. If I see it dropping like a rock and gaining a momentum I would convert put spreads into call spread and see if it was a right move. If the market is calm and I am unsure which direction it may go but going moderately down, I would probably let it touch or even let it go slightly in the money but I wouldn’t convert into calls yet, rather, I roll it still into put spreads but a few days away. This is really hard to say.

Those trades which are at the money, or near the money, or even slightly in the money, can be rolled into calls and same expiration (when the market is moving down fast) those already in the money (or deep in the money) needs to be rolled away (or sell a call against it – in this case I try to roll 2 DTE or 6 DTE and sell calls, so the calls get bought back for nothing and still provide a necessary cost offset).

The secret to consistency is have enough resources to adjust a trade when needed, not to panic when needed, know what to do in lieu of searching for what the market would do, trade less trades (the amount you can handle) and be prepared for everything and anything out there. If you open a trade and it makes you nervous and stressed and disappointed, and miserable, then that trade was wrong… better close it then. But if you open a trade and it was a bullish trade but the stock or market turns bearish you know what to do and do it, then such change in direction will not affect you.

 

 · Trading activity today

 

Today, a new member of our trading group reminded me of a fact that my recent trades posted do not match my strategy anymore.

Although I politely disagreed and explained why I was trading SPX and AMZN lately, I must admit that he was right. I am deviating from my original strategy in chasing gains! Time to calm down and stop it immediately!

This trading is profitable but can get me into dangerous waters of over-extending myself on maximizing profits, make errors, and lose it all. I must stop trading at this rate and be more patient and humble (as the new member of the group said). It is sometimes good to be in a group where other can remind you of your own deficiencies.
 

A summary of opening and closing trades.
(balance + $795.00)

 
S&P bear market
S&P bear market

 

 · Dividend stocks to buy

 

Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/13/2018):
 

AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
 

Some members and investors asked me to publish my views on dividend stocks before market close rather than after the market close.

I realized that I do not have to do that.

If you want to see the stocks I deem “undervalued” at any time, you can go to my blog’s watch list and see those stocks at any time as it is updated automatically during the entire day (5 minutes delay).

In the column tagged as “Trd?” those stocks in    green highlight and white text    are the stocks I would consider a buy at current price.

So, I will keep posting the stocks at the end of the trading session and if you need to see it before or during the day, go our watch list page and check those stocks on your own anytime.

 

The spreadsheet is automated taking data from Yahoo finance and Finviz, however, Google sometimes have issues importing the data and it drives me nuts; it then shows “#REF!” error.

To determine the “correction” mode I use offset from 52 wks high and the stock must retreat 10% or more to show as correction. But that mode still does not mean a buy. I also use a fair value calculation which is based on Graham formula (partially) – meaning importing the company’s PE, EPS, desired annual growth, etc. and based on that calculating PV (present value) for the next 3 years. For expected growth rate I use 4%; Graham uses 8.5%, so he is more aggressive or demanding but my theory is that this dividend behemoth stocks are not growth stocks and they tend to grow at the same rate as their dividend increases. Since my combined portfolio annual dividend growth is 3.6% I used 4% for the PV calculation. Then both conditions must be met – the PV must be larger than the current price and the stock must be 10% off of the 52 wk high at the same time to buy it. (for example, lately ADP is shown as undervalued but not in a “correction” mode, so it is not a buy as of now.).
 




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Posted by Martin March 12, 2018
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Why you are wrong celebrating 10 years anniversary of this bull market


I have seen media saying that this is the longest bull market in history. I have seen people predicting the end of this bull market in 2017 and now in 2018. Some people were predicting this bull market to end in 2013, 2014, 2015, and 2016. Others were predicting the collapse since 2009.

To answer the question, is this the longest bull market in history, my answer is a resolute no!

No, this is not the longest bull we have seen.

To find out we need to define the bear market first. Again, the general public and talking heads define the bear market when the stocks represented by three major indexes lose 20% or more. Let’s ignore the reasons where this bogus number came from and why, but think about it. Why 20%? Why not just 19%? Or 30%? Why 20% is the magic number and 19% is not?

If you ask this question people will have no answer.

Another point is what price qualifies as a determining factor to judge the market to be a bull or bear? They will say that the industry standard is that the “CLOSE” price counts. But why not day LOW? or Intraday CLOSE which happens to be a day LOW at one point in a time line?

If you look at the chart below, in 2011 the market actually went into a two months long bear market!

 
S&P bear market
 

Look at the chart!

Each candle represents a week. During that one week the market dropped all the way down to 1076 points. Down from all time highs of 1363 points. That is 21% drop! According to bear market definition, this was a bear market!

Yes, later that week, the stock market recovered and ended the week higher but during that week we experienced a bear market already.

And thus this is not the longest bear market in history.

The bull market then went from 2009 to mid 2011 and after a two months long bear market it went up from mid 2011 till 2018. That is only 6.5 years long bull market! Nothing extraordinary according to historical standards.

However, people still remembered the very painful Great Recession in 2008 as one of the most significant event in Wall Street since Great Depression so any drop of 21% was considered small and fairly quickly forgotten. Another contributing factor to this loss of memory is that the market didn’t stay below 21% for long, only about a week. And investors have a very short memory span.

 

 · Market outlook

 

I still believe this bull market is not over yet and it will create new all time highs in the next 2 to 3 months. I am basing my estimate on historical market behavior, which you can verify for yourself when the market, almost in all instances, always made new ATH after 10% correction.

Of course, I am not saying that this must happen because out of last 16 occurrences it happened in the previous 15. To claim that the market must act this way based on past occurrences would be an investor’s gambling mentality. A gambling mentality is a probability trap investors fail often for. It says that if you flip a coin for 10 times and it lands head ten times people are convinced that the 11th flip must be a tail after so many heads in a row. It is not true. The coin doesn’t know that it flipped head up 10 previous flips so this time it must get tail. The probability of landing on tail is still 50% no matter how many times it ended on head.

Thus it still may not happen but since the market is influenced by human behavior and people tend to incline to patterns chance that this time we too will make all time highs in the next 2 to 3 months is high.

I also still believe that this bull market has 2 years left before we see a significant correction or bear market (possibly in 2019). However, again, approach my expectation with understanding that anything and everything can happen and unexpected is inevitable. My reasoning is that we are seeing an economic slowdown. It may be just a cycle within an established expansion trend, or really a slow down. Another reason is Trump as a wild cannon ball implying economic policies which may cause a trade war or economic slowdowns or even an economic halt and all that to fulfill his flawed promises either not knowing or ignoring impacts of those promises.

However, short term, this market is still bullish although we may see some bumpy moves.

 

 · Trading activity today

 

This morning the markets went up and I expected another rally. It faltered fairly quickly and the rest of the day the markets was flat. We opened a new put spread but when the market reversed from the rally, the put spread became somewhat hot. But the market was lazy and soon it became apparent that the trades I opened during the day would end up safe and expire out of the money for a full profit:

 
S&P bear market
 

At the end of the market session, all trades expired worthless for a full profit.
 

A summary of opening and closing trades.
(balance + $430.00)
 

S&P bear market

 

 · Dividend stocks to buy

 

Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/12/2018):
 

AGNC
CVX
HD
KMB
MCD
OXY
PG
XOM
 

As announced yesterday, today morning, we bought the following dividend stocks:

 

American Water Works Company, Inc. (AWK)
The Home Depot, Inc. (HD)
Occidental Petroleum Corporation (OXY)
 

What are your expectations of this stock market? How are you preparing yourself for a potential bear market?
 




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Posted by Martin March 10, 2018
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Weekly Results – Mar 09, 2018


I like volatility!

Yes, you can make a lot of money if you trade carefully, have enough money to navigate through trades which turn bad (the worst thing which can happen to you is not having enough cash and get a margin call) and trade. No pain (risk), no gain.

March was so far the best month making money trading the volatile market down (in February) and up (in March).

In the first 9 days of March, we made $9,710 dollars.

 
S&P500
 

However, I still need to seriously work on reducing our accounts exposure, meaning that they are over-invested (over traded). that means, that I am not going to be opening more new trades but only manage the existing ones. We have made enough money in the first 9 days of March to stay aside and do not trade. The only exception to this is our IRA account where we have enough buying power to trade, although in this account we will also slow down the trading activity to raise cash in preparation of future troubles. I still believe, this bull market has about 2 years left.

 
S&P500

 

 · Trading activity today

 

On Friday the markets rallied hard and I took advantage of it. We rolled a few trades and opened a bunch of trades against SPX riding this bull up. The market rallied more than 40 points up creating new highs for the week. This brought nice cash.
 

A summary of opening and closing trades.
(balance + $905.00)

 
0309trading
0309trading
 

This was an outstanding month so far. We made money pretty much every day. I hope we will be able to keep this trend in the upcoming week.

 

 · Dividend stocks to buy

 

Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/09/2018):
 

AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
 

Last week, we made nice cash and it is our plan to use 50% of the options trading proceeds to buy dividend growth stocks from our watch list.
 

On Monday, we will be buying the following stocks using the strategy mentioned above:
 

American Water Works Company, Inc. (AWK)
The Home Depot, Inc. (HD)
Occidental Petroleum Corporation (OXY)
 


Disclaimer: The list above is based on calculated fair value and 52wk high offset valuation. The values are subjective to our calculations and opinion and may differ from your own. If you decide to trade or buy these stocks, do so on your own risk and do your own homework. The list is not our recommendation to you.

 

 · Market outlook

 

1) From the long term outlook the market is still bullish. We do not expect a bear market to start in 2018.

The high yield spread is flat and has been since 2017 (at around 10% range). We need to see the spread going up to see the beginning of an end of this bull.

 

2) Trump’s tariffs are now behind us and they will no longer pose threat to this market short term.

Now that we have a clear way, we can have an effect of the economy to influence the markets. We are still expanding although slowing down. This means we may see the market to make new all time highs before we loose steam. Bear markets do not start at the high trend momentum. We need to see the momentum to lose first. It is not yet happening.

 

3) We are still below now above 50 DMA which serves as a resistance and that may pose some short term difficulties.

We now need to confirm the Friday’s breakthrough above the 50 DMA which I expect to happen next week. If so, the path to new ATH is open.

 

4) Investors’ sentiment is still very bullish (source AAII).

 
0307trading
 

5) Based on historical market behavior I believe, this bull market has about 2 years in life ahead in front of us.

 

What do you think? Are we nearing the end of this bull market?
 




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