The Week Of October 11, 2020
The first week of earnings season is always a great example of the hype that our strategy is designed to exploit! Market volume has significantly picked up, and that means the size of the wild market swings that we can profit from are increasing. We saw several pieces of bad news get priced in this week, including market data in the U.S. and internationally.
Weekly jobless claims came in at 898,000, continuing their recent upward trend, while Covid-19 cases have spiked again. Stimulus negotiations have stalled, not just in the U.S., and it seems that most traders are ready to admit that we won’t have stimulus until after the election at some point. People continue to struggle to pay their bills around the country, while the volume of money flowing into stocks during gambling season remains spectacularly high. The dollar grew in value in response to all of our continued economic hang-ups, indicating that cash has become available on the sidelines to enter the market. Although we were overtaken with bearish sentiment this week, there is a potential for a strong rebound over the weekend as we move into the next week of earnings season! Don’t forget to keep using limit orders as a way to catch volatile market swings without having to watch the market closely.
Virus discussions and response remained in the forefront of trader focus this week, which gives lift to any companies that have been able to perform well during the pandemic. Since it appears that any government economic stimulus is once again weeks or months away, markets have reacted generally negatively this week. At the same time we have seen a series of price target upgrades for various firms about to announce their earnings calls, which could set us up for a perfect melt-up scenario. The FED chairs continue to indicate they will hold rates near 0%, and this position is unlikely to change as the market has driven down mortgage rates to all-time lows once again. The S&P 500 closed with gains 2 out of the last 5 trading days last week, and it appears that bulls and bears will continue to clash creating volatility into the November elections.
Last week, I traded options for JNJ, GS and DAL. These are the results:
For an additional opinion on Delta Airlines, CLICK HERE.
JNJ was our big winner this round, with the following trade entry information: JNJ 10/16/20 $150 call, limit price $1.70.
This play was based on the recent hype around Johnson & Johnson’s vaccine trials, and the level of media focus that should be around their earnings report on Tuesday Morning. JNJ holds various patents and sells products that people still need to buy all throughout the pandemic, making this typically safety stock a good potential earnings run up play. Technical analysis indicated that JNJ has been trading between the $146 and $149 price range for the last month, and positive earnings expectations could have pushed it above $150 and beyond. I planned to buy in the morning, but Average In if we saw the price fall $2 in the afternoon on Friday. I planned on using a calendar spread to enter the morning trade by selling a 10/09/2020 $151 call to get 3% better entry and keep the trade bullish.
Our outlook into the weekend is bullish as we start to come away from a three day sell-off, and a series of bad news event that could have scared investors into a bear-trap. As we move into the election, I find myself looking to the contrarian argument that we will continue to melt-up into the certainty that whichever official is elected, they will create policy that improves market-sentiment overall.
REMEMBER to only open positions that fit within your own personal risk tolerance, and NEVER ‘CHASE’ trades that you missed a good entry or exit on. There will be another opportunity for you just around the corner.
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