It happens far too often: a game-changing company comes on the scene, has a massive run in its share price, makes a ton of people a ton of money, and becomes a media darling with constant, breathless stories about this exciting new widget maker.
But then the sideliners who sat with their hands in their pockets begin to grumble about how "the stock is overbought", "it's going to crash," "the founder is a fraud," "this company is a scam," etc. No skin in the game, just bitter about not participating. It seems in recent years, Tesla (and it's founder Elon Musk) has been the poster child for this phenomenon.
The Technology sector ETF $XLK in recent months has overtaken its previous highs set in the year 2000. For anyone that was trading during that time, you know that breaking these levels is a big deal. Do you think 18 years of reclaiming former highs is going to stall right here? I don't.
But maybe you think this week's stretch break higher is a little much and while you're bullish too, perhaps you're more cautiously so in the near term? I don't entirely disagree. Thankfully we've got some well defined levels to trade against while seeking to earn some income.
Technology stocks continue to lead the broader markets higher, and that still keeps us at All Star Charts bullish on stocks. How can you not be when technology has such an important weight on the indexes?
JC recently drew attention to the leadership in the Payments Processing space. It seems that nearly every chart of every major company in the sector looks insanely bullish. And it's hard to argue when you look at names like Visa ($V), Mastercard ($MA), Global Payments ($GPN), Paychex ($PAYX), and Square ($SQ).
But my attention is squarely focused on an opportunity in Paypal $PYPL and here's why...
The $XLE Energy Sector ETF is currently scoring one of the highest implied volatilities relative to it's biggest ETF peers. Sure, it's warranted as price action has been a bit erratic of late. And we can argue about the politics and economics behind the moves and what they all mean. But I'll leave that to another guy who doesn't value his time. All I care about is putting myself in trades where an edge exits.
And when IV is priced high, these are often great opportunities to hunt for credit spreads.
Options are a leveraged instrument, and if you're not careful, it's easy to find yourself exposed to more risk than what you're comfortable with. A subscriber to All Star Options pinged me this week with some questions and I thought our discussion might be fruitful to everyone...
I was confused too. But no, $DQ is not America's favorite destination for shakes, malts, and blizzards. But it is sexy in it's own way -- it's an energy company named Daqo New Energy in one of the hottest sectors we think will be leading stocks higher this year -- Solar Energy. According to wikipedia, $DQ is a Chinese company "engaged in the manufacture of monocrystalline silicon, polysilicon, and silicon wafers, primarily for use in solar photovoltaic systems." OK, sounds cool? It really doesn't matter to us, we're just following price, and we're going to trade it with options in a defined risk spread.
It might sound like we're beating a dead horse here, but the Russell 2000 printed another new all-time high yesterday (I know, it ended up being a red day, but that volume tho...) and there's just no way I can view this with any bearish context. Sure, perhaps it's extended and due for a rest (or gasp, a pullback) but it's simply irresponsible to be spouting actively bearish broader market calls in this environment right now.
As such, the team at All Star Charts keeps digging into the sectors that are looking like candidates to lead the next leg of stock market gains higher. Today, we've got our eye on the Biotech sector.
The team here at All Star Charts is very bullish on the Oil & Gas Exploration & Production sector as discussed here (premium). Before we get into how we're going to play it, here's a little background to give color for our optimism for the opportunity we see, from our kid off the bench Tom Bruni:
Everybody loves a deal. And that couldn't be more obvious after looking at a monthly chart of Costco $COST going back to the financial crisis that bottomed out in 2009. Shoppers clearly have been filling Costco parking lots and their carts, as the monthly chart has been a beautiful uptrend with very little volatility.
One of the great things I've experienced while getting All Star Options off the ground with JC has been putting pen to paper to really codify for myself how I view options trading. It's one thing to have a nebulous sort of idea of how I approach certain options strategies and when and how I might employ them, but it's quite another to sit down and really break down how each strategy should work, how it fails, my plans for taking profits and/or cutting losses and opportunities for position adjustments.
Instead of hoarding all this brainstorming for myself, we've decided to add it to the Education section of Allstarcharts.com so that you, too, can have easy reference points for thinking through your own trades.
In JC's All Star Charts May Monthly Conference call for subscribers, there was a theme that he consistently revisited: Bonds are going lower.
There's no need to over-complicate this stuff. We could waste time arguing about what increasing interest rates means for the stock market, or yield's implications on policy decisions in Washington, the effect to be felt in the housing market, or how retirees savings may or may not be effected. That might fill airtime on SHOUT!TV, but all we care about here is positioning ourselves to make money. Leave the intellectual debates to the talkers.
We're the doers, and we want to position ourselves for further downside in bonds.
