In 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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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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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.
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.
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
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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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!
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.
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)
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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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!
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.
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.
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:
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)
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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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.
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.
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)
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.
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.
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).
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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Now that the Trump’s tariffs are out of the way, the over reaction of market participants is finally over and we are back on track of the bull market rally.
But, be cautious as this may end quickly at any time.
I took advantage of this rally and opened a few new trades with SPX underlying (bull put spreads) and with today’s expiration. Now I am riding this rally back up. Check the trades on our Facebook page.
Funny, last time when we had jobs report better than expected, markets went on selling spree in fear of too much good economy, now we have another beat the freaks report and markets rally (well, per Yahoo… they always need to find a reason)… This is better than a Circus Humberto…
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Today, Trump announced his new steel and aluminum tariffs policy. And all I heard people saying was that he imposed tariffs on countries from which the US doesn’t trade steel nor aluminum, all others will be exempt or can apply for exemption. Or he imposed tariffs on everyone and them exempted everyone.
But markets liked it.
After almost of whole day of doing nothing, the markets popped about 12 point. That was it. A big humbug for nothing. Now that the news of tariffs-no-tariffs are out, we have to wait for something new to spook the markets. Don’t worry. Trump and his cronies will come up with something.
Until then, we need to trade cautiously and wait. I am raising cash and closing as many trades as possible to overcome any drops of the market should they occur.
So far, it seems we created a new higher low and we might be going higher.
Some fellow investors also asked why was the market so calm today and it spiked only at the end of the day? As you can see the chart above has the answer. Investors were out staying aside and waiting for Trump. No one wanted an exposure to this uncertainty. That’s my take.
And I decided to do the same and closed some positions, which were almost worthless anyway to reduce my exposure should the tariffs news be bad and market would tank.
A summary of opening and closing trades.
(balance + $82.00)
Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/08/2018):
AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
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.
1) From the long term outlook the market is still bullish.
2) Trump’s tariffs are now behind us and they will no longer pose threat to this market short term.
3) We are still below 50 DMA which serves as a resistance and that may pose some short term difficulties.
4) Investors’ sentiment is still very bullish (source AAII).
5) Based on historical market behavior I believe, this bull market has about 2 years in life ahead in front of us.
6) According to JPMorgan the Global Manufacturing Growth and PMI has been falling (economic slowdown) and they expect it to fall throughout 2018. That corresponds with my expectation of 2 years remaining in this bull before we see a serious bear market or deep correction. But, you know me. I do not have a crystal ball and this may be just a bias. Don’t bet a penny on this. This is not a prediction.
What do you think? Are we nearing the end of this bull market?
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Another nice and interesting ride today in the stock market. After resignation of Gary Cohn from Trump’s administration which was announced yesterday at 5:30 ET the futures at S&P and Dow dropped 32.25 points and 400 points respectively.
S&P 500 was losing 1.41% and all our trades looked very gloomy.
Although I kept saying to myself that Trump’s ongoing tariff threats are just over reaction and only a short term bearish factor for the stock, it is difficult to stay calm when you are facing trades with expiration round the corner and deep in the money.
As a dividend investor it is easy to stay calm. Of course, you must train your mind set to be like that. It take training, it takes patience, maybe even guidance by someone experienced, and it takes a lot of guts to stay calm. I can proclaim that I am already there and these volatile days do not derail me a bit. I actually welcome these days as they allow me to add more great dividend aristocrats to our portfolio. And we can buy cheap!
Two great investors and billionaires Warren Buffett and Ray Dalio came out with a great advice for long term investors. Something you have probably heard many times:
But for the average person, shifts in the market, even ones as dramatic as the ones we’ve seen this year, shouldn’t be cause for panic. During times of volatility, seasoned investors Warren Buffett and Ray Dalio agree that it’s best to stay calm and stick to the basics.
“Don’t watch the market closely,” Buffett told CNBC in 2016 amid wild market fluctuations. “If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they’re not going to have very good results.” (Source USA Today)
You may say, “it is easy to say than to do”. True, sort of. But that’s when training comes handy. I trained my mind the similar way as Ben Graham says in his book Intelligent Investor:
Look at the prices of the stock when they go down as that they are on sale. Imagine, that a CNBC commentator or talking head exclaims “Stocks on Sale! AAPL is now 4% cheaper! Never before at this price! And we hope that this promotional sale will continue tomorrow and we get the stocks even cheaper tomorrow! Great stock liquidation prices!”
How many times we go shopping and look for lower prices; comparing prices on internet who sells goods cheaper?
And why we do not do the same when purchasing stocks?
Warren Buffett says that “If [you] buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now.”
And that is exactly how I look at them. I do not buy dividend aristocrats to trade the, I buy them to hold them. And hold them means forever. There is only one exception to this rule when I decide to sell. And that is when the dividend aristocrat cuts the dividend.
However, I also trade!
And if you trade, your mindset needs to be a bit different than that one of a long term dividend investor. You cannot open a trade and walk away. Those trades need constant watch (or at least a watch when you are nearing to a decision point of that trade, so it also depends, what you trade and what is your time horizon).
When I approached stock market for the very first time in 1996 I wanted to learn trading to generate cash which can be invested.
Sad thing is, it took me so long to learn it. True, I lost money, lost interest in stock market and quit. I got back in 2006 and decided to learn again. Another 10 years of a college and doctorate of investing before I can say, I finally learned the topic and now make enough money trading to spend 50% of all my proceeds to invest into dividend aristocrats.
Yet, there is still a lot to learn – consistency. But I am getting there!
Before the trading ended today, the market recovered all losses from the morning. It was something I didn’t imagine nor envision. I was ready and prepared for another catastrophic selling. What was surprising though that the market seemed very lazy the entire morning. First the futures recovered from the lows and the market opened down only approx. 15 – 20 points and moved nowhere the entire morning. It was the time when I lost faith in this market and decided to roll my SPX puts into the next expiration to avoid troubles should the market suddenly collapse.
Then, rumors about possible tariffs exemptions came up and the market shot up and at one moment it was in green. We closed only 1.32 points down!
This indicates that we are really in a bull market and Trump’s economic extempore has no long term impact on the bull. I am expecting the market to be in its bullish mode for the next year or two but there are some so called experts who predict this bull to last for the next 20 years! I wonder what kind of crystal ball are they looking at.
Out of nervousness that the market may crash by the end of the trading day I decided to do some adjustments on my existing trades:
A summary of opening and closing trades.
(balance + $375.00)
Today, I also purchased OHI stock which is not included in the balance (income/expense) report above.
Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/07/2018):
AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
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.
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Once confident investors pushing this market higher are now spooked by anything and everything. Trump once boasted about the stock market, talking heads were praising him, investors had bright future in front of them and the bull was unstoppable.
It all changed suddenly on a dime.
They are now all spooked by the same man and same policies of the praised economic guru who is no longer seen as one. An economic adviser in Trump’s administration Gary Cahn, considered by some as a reasonable guy in the entire Trump’s crazy cabinet (I do not know Cahn so I can’t comment on this) resigned from Trump’s government. They announced it at 5:30 pm today and futures crashed 1.41%
Although we recovered a bit from the lows, the market looks gloomy. It is still too early to say where the markets opens tomorrow morning but it seems that investors are spooked. They believe that once Cahn was the one who kept Trump leashed so he won’t go amok in regards to his “hitleric” shouting about tariffs. Like we haven’t seen this before on any different matters.
Well, we can expect bumpy trading tomorrow. It is hard to say, what would be the best approach to trade this market. So we have to wait and see.
We have a few trades with tomorrow expiration against SPX and Friday expiration against AMZN.
If we open where the futures are now, our puts will be in a danger. The hard part will be what would be the best thing to do – convert to calls or just roll? With futures this deep it is hard to say whether we will go lower or we the reason will return to the market and we recover. Rolling puts only would help should we recover or kill us should we not. Converting to calls should help should this market continue down but kill us should we recover. Now I wish to have the crystal ball.
Today, I did a few trades for which I kick myself now. I rolled my old calls into puts which cost me some buying power and now it seems it was a mistake. But, when I was doing it, who knew?
Let’s see how tomorrow goes and how I will be, or will not be, able to navigate this mess, again.
This starts making me tired and I think I need break. I know I said that several times but I need to stop trading and take a break. So I will be sitting this through and managing the existing trades only and not opening any new ones.
A summary of opening and closing trades.
(balance + $1490.00)
Out of our watch list of 35 dividend stocks the following ones are a good buy at today’s prices (03/06/2018):
AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
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.
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