Wednesday’s market reminded us that not every day brings joy to the bulls.
But you know what?
I keep a list of stocks I want to trade, for up and down markets.
With stimulus money running out, Coronavirus cases rising, and eviction moratoriums coming to an end, we must consider the thought…
Which stocks will work when the market declines?
I’ll help you out by offering my favorite stocks shortly…
Heck, I’ll just tell you about one now… a great LottoX trade from the other day.
Starting with some of the stay-at-home plays, Telodoc tops the list. Moving to a remote world upended our lives overnight. Telodoc landed in a great spot to ride a real change in healthcare.
As a trader, I care about two things: theme and charts. Telodoc fits both the stay-at-home trade and the growing healthcare trend.
But I particularly like the chart of the stock.
TDOC Daily Chart
I drew a white arrow underneath to highlight how strong this bull run has been. The pullbacks can be rather large, sometimes as much as 10%. But overall, the stock keeps climbing day in and day out.
With plenty of liquidity in the shares as well as the options, it offers great opportunities to trade intraday and as a swing trade.
However, implied volatility has kept option premiums rather expensive. So, I tend to favor put credit spreads unless I’m working with a short duration play.
Of the recent IPOs that hit the market in the last couple of years, Zoom is one of the few that is profitable. It’s not a lot, but it’s better than most of them out there.
No company exemplifies the pandemic trade better than Zoom. Their software allows everyone from businesses to your parents to create conference calls in the closest thing we have to Star Trek.
We have a theme, but do we have a chart?
ZM Hourly Chart
Yes, we do!
I pulled up the hourly chart to show you something important.
The light blue line is the 21-period exponential moving average. Every time price falls into the moving average, it finds support and keeps moving right along its bullish trend.
What I love in particular is how it makes these stair step consolidation moves, giving me time to enter the trade and ride it for some sweet gains.
This is a bit of a newcomer to the scene, but I think it has a lot of potential.
Right now, the stock hasn’t sold even a dollar of revenue. Yet, shares managed to climb through the roof, briefly giving it a market cap larger than Ford’s.
Let’s first look at the chart because what I find most interesting about the stock are its options.
NKLA Hourly Chart
Even though I know little about the company’s fundamentals, the chart looks bullish…full stop.
You can see how the latest squeeze (the red dots inside the white box) fired long (when the dots turned green), sending the stock higher.
Because there aren’t many shares available for shorting, option premiums on the puts are through the roof. I can’t think of any time I ever saw anything like this before, and I’ve been trading for well over a decade.
So, I took the liberty of selling some insanely juicy put credit spreads. While these went out to August, risked $30 to make $470 for each contract…and the strikes were easily 10% away from the current price when I initiated them!
Sentiment against the company is so negative, I believe it could end up becoming the next Tilray (TLRY). The cannabis company didn’t have the greatest business prospects. But that didn’t stop shares from climbing through the roof.
SitchFix is my final market decline selection and one that I’m currently swing trading to the long side.
It fits with the stay-at-home trade theme with fashion delivered to your doorstep…something I could probably use.
Anyhow, I want to show you why I’m swing trading this one to the long side at the moment.
SFIX Daily Chart
Ladies and gentlemen, we have a TPS setup!
My TPS setup looks for stocks with a clear uptrend, consolidation pattern, and a squeeze. The white arrow highlights the uptrend with the white lines connecting the tops and bottoms of the candlesticks to form the chart pattern.
At the bottom, you can see the red dots, indicating a squeeze.
All this combines to a pretty sweet opportunity trading higher even if the market declines.
Now, I know it’s not easy to trade these in real-time.
Not to worry.
This premiere trading service not only gets you access to my streaming portfolio and updates but weekly training as well.
Take your trading to the next level.
Rarely do I stake my money against the market.
But with stocks roaring back from the March lows off nothing more than hope, I can’t keep on my bull face.
Already, this stance is paying windfalls for myself and LottoX Members.
And I want to share with you my go-to strategies to create payouts… week after week.
We’ll be going beyond the basics of calls and puts today…
But it will be well worth it…
Once you discover the type of risk vs. reward these trade setups offer.
One of the hallmarks of this market has been increasing options activity. We set a record for the most contracts open during last Friday’s expiry.
The makeup of option contracts can tell you a lot about where market sentiment lies. My favorite is the put/call ratio.
Using the put/call ratio, I look to see when its at extreme levels, both high and low.
Here’s a look at the daily chart over time.
Put/Call Ratio Daily Chart
Generally, the put/call ratio sits around 0.7-0.8. When it starts to exceed 1.2, we’re nearing a bottom. If it’s getting below 0.5, we could be near a top.
Most of May and June, we’ve sat at pretty low levels, despite having high implied volatility. Part of this is investors and traders are buying call options rather than putting their money into the market. They don’t want to get caught off guard like they did back in March.
Additionally, I watch for breaks of significant support intraday to tell me the trend has changed.
In this 78-minute chart, you can see how the S&P 500 futures violently broke through the trendline. That gave me a spot to bet against the market when it returned there.
S&P 500 Futures 78-Minute Chart
Also, you can see at the bottom how the squeeze (red dots) told me energy was building up. Once that’s released (green dots), it tends to lead to explosive moves.
Lastly, I look at the Tick chart, which measures the last tick (movement) of the NYSE stocks. There’s about 3,000 of them, so it falls in a range of -1200 to +1200 most of the time.
When the ticks are above 0, that leads to more bullish price action, and the opposite when it’s below. The longer the ticks stay above or below the zero line, the more pressure we see to the up or down side.
NYSE TICK 5-Minute Chart
On Friday, the ticks started bullish enough. But then they fell completely apart, coming down to some of the worst levels in weeks. So, when the market bounced back, I used that opportunity to bet against it.
Now that you have an idea about what I look for to time the trade, let’s move on to the strategies I use.
When I trade for the market to head lower, I pick from one of two options: long puts or selling a call credit spread.
Let me explain the difference and how I decide between the two.
A long put is simply buying a put options (bet on the market going down) for a certain amount of cash. The more the market goes down, the more it pays.
However, long options have a big downside. They can cost a lot of money and they lose value over time. My maximum potential loss is the amount I put into the trade.
Selling call credit spreads is a bet against the market with a twist.
Instead of buying a put option, I sell a call option at or above the current price. Then I buy another call option with the same expiration at a higher price.
This pays me a credit which is the maximum amount I can make on the trade.
In order to collect the full amount, I need the stock to get to expiration and land below the lower call strike, causing both options to expire worthless.
My maximum potential loss is the difference between the two strike prices minus the credit I receive up front.
Unlike the long put option, the call credit spread benefits from time decay. Plus, I can also take it off at partial profit.
So when do I pick one vs the other?
Typically, I will play long puts when implied volatility is low and I expect the market decline to be swift. Increases in implied volatility work in my favor, and I don’t want time decay to work against me.
When implied volatility is high or I expect it might be a small move, I’ll sell a call credit spread. That let’s declines in implied volatility work for me and I don’t need to worry so much about the market tanking to get paid off.
I know I sure am!
You can catch me live with LottoX, my fast-paced options trading service. My portfolio of trades is streamed every day. Plus, there’s live weekly training and education.
I’ve got some sick trades for you this week.
But, you won’t need to wear a mask to hear them.
These charts are so hot that you might think you’re running a fever.
In fact, one LottoX trade paid me so well last week, I’m looking to start off with it this week.
And no more dad jokes, I promise…sorta…
That’s right folks – Nathan Bear is finally earning his last name.
Even though I’m a permabull, SPY put options are my top earning trade this year.
Just last week I scored a massive gain by catching the market when it broke a key support.
Let me show you what I saw in the chart and then explain why I think this week could be setting up for an even bigger move.
Here’s a look at the SPY intraday chart from Tuesday through Friday.
SPY 15-Minute Chart
The orange trendline connects the lows of the candlesticks that acted as support for most of the week. Once price broke through that level, it kept heading lower. The retracement back into that point was the spot where I took my short position.
Now, I want to point out the red dots in the bottom indicator. That signals a squeeze, part of my TPS setup. When they turn green, the squeeze fires, releasing the pent up energy.
Every time those squeezes fired, it led to lower prices.
So, even though the market opened higher on Friday, with options expiration and a swift move lower, I knew that once it failed below the trendline, I had a chance to gather some puts.
Turning to the 78-minute chart, I want to explain why I think this might end up being a failed TPS that fires to the downside.
SPY 78-Minute Chart
Typically, my TPS setup would use the thrust off the bottom (yellow arrow) to create the trend. Then, the consolidation pattern (orange trendlines) would give me the pattern portion.
However, Friday’s market action dropped price through the lower trendline. Then, it closed down there (top white box).
At the same time, a squeeze began to form as momentum shifted to the downside (dark blue bars in the histogram and red dots).
Combined with what I view as poor intraday market action the last couple of weeks, as well as COVID stocks starting to gain momentum again, I think we’re due for another serious pullback.
Right now, I’m slowly adding to longer-term put positions on the SPY. If the market breaks back above and starts closing above the upper trendline, I’ll know I was wrong.
However, I expect the squeeze to fire and send the market below the most recent lows.
As I mentioned above, the Coronavirus related stocks started to surge at the end of last week.
No stock follows this trend better than Zoom Media (ZM).
In fact, before the pandemic began, it was one of the few hot IPOs that actually turned a profit.
But what interests me about this stock is the classic TPS setup.
ZM 78-Minute Chart
Here we’ve got all three elements of the TPS setup.
The white arrow shows how the stock has been in a perpetual uptrend for weeks. If you moved out to a daily timeframe, you’d see that it’s actually gone on much longer.
White trendlines above and below the recent price action connect the ends of the candlesticks, showing how price is contracting into a narrower channel.
Lastly, the red dots at the bottom show a squeeze, where the Bollinger Band moved inside of the Keltner Channel. The light blue also indicates momentum shifting to the upside.
I’ve already started building positions in this stock last week and will continue to this week so long as the trend continues.
One of my favorite stocks of late has to be Tesla.
Despite the huge price appreciation this year, I don’t think the market is done squeezing short-sellers.
If enough people keep betting against the stock, it entices big money to push up price and force them out of their positions.
Take a look at the 78-minute chart.
TSLA 78-Minute Chart
Our trend isn’t as clean on this stock. However, you can see how buyers keep stepping in to send prices higher any time it pulls back.
On top of that, we’ve got a contracting price channel that the solid white lines highlight. Plus, the red dots at the bottom indicate we’re in a squeeze.
Like Zoom, I already started taking a position in this stock last week, and plan to play for another push higher of anywhere from 5%-10%.
Want to see these trades live?
There’s only one way to make that happen – LottoX.
No other service offers these types of trades with my TPS Strategy, the same one I used to turn $38,000 into over $2,000,000 in just two years.