Markets Bounce Back: Here’s What This Means For Us
Welcome to the Rude Awakening!
With the markets bouncing back strong today, let’s take a deeper look at what’s going on…
How We Analyze the Markets
To analyze markets, we use a couple of key tools.
- The 50day MA: the 50-day Moving Average acts as a support and resistance area on the overall market and can be used on individual securities, to determine ranges for expected movement based on recent action.
Right now, we can see the market bouncing strongly off of that level today.
- Stochastics: we use this one as a sentiment indicator. You can see in today’s video, above the 80 line the markets are looking overbought; below the 20 line, oversold.
Today, we have bounced back from the oversold area, moving into a buy signal according to Stochastics.
- MACD-Histogram: this is a lagging indicator, and takes about 2-3 days to kick in and confirm whatever the Stochastics are telling us.
Today, we can see they are starting to turn around and head in the same direction as Stochastics shows.
- RSI: when you look at the Relative Strength Index, you see this 70 line and 30 line. This tool shows us where relative strength is in the marketplace: to the upside or the downside?
Right now, you can see we are moving up on our RSI, as well.
What Do All These Indicators Tell Us Today?
We have a buy signal kicking in.
We continue to believe that for the short term, we’ll continue rebounding to the upside.
So, we can take advantage of this knowledge in the long term, but most importantly, how will we capitalize on this data today?
Today’s Focus: CCL
Carnival Cruise Lines, or Carnival Corporation (NYSE: CCL), is one that’s been talked about a lot lately, especially at the beginning of the Coronavirus pandemic.
You all know what’s happened there.
But, downturns like this are nothing new for the cruise line industry, going back the past 5 or so decades.
We can see that right from the start of the pandemic, CCL stock has been knocked from the $50 range all the way down to $10 levels. They’ve maintained that level pretty solidly for the past several months, mostly due to announcements saying they have enough liquidity to hold on throughout the end of this year.
But, obviously, none of this is good for business.
Looking at their charts, in spite of the overall market rebound, it’s moving into a sell signal.
The Catalyst for a CCL Play
Carnival Corp will be reporting earnings in just about a week, on 9/24.
There’s no question about the fact these earnings are going to be horrible.
The question is, how bad will they be?
This makes for an interesting scenario for us as short-term traders.
Looking at the options for CCL, you can see the strength of the implied volatility levels.
If you remember, I.V. is an option seller’s best friend, because it makes for higher premiums to collect at the outset of your trades. Anytime you see I.V. above 50% generally means that this is a nice trading opportunity.
To find out about the specific trade I put together for downside protection and high-conviction profits on CCL, click here to sign up for the free beta test of the Rude Awakening Pro.
But remember, options trading comes down to data and understanding. From there, it’s just about executing on the knowledge you have.
That’s it for today.
We’ll talk tomorrow morning.
Editor, Rude Awakening