The “Monster”-Caps Takeover
Good morning folks, and welcome to the Rude Awakening!
Before we get started, a quick note: If you have any questions, comments, or ideas you want to share, I’m here to help! Just email email@example.com. I can’t give you personalized investment advice, but I want to help make the Rude Awakening Pro the best it can be for you, and your feedback and questions are crucial in that.
Now, let’s get to it!
Looking at the markets just before the opening bell, we’re poised to have a positive open.
Today is “Fedspeak” day, with an announcement coming later today from the Federal Reserve.
Usually, Fed announcements mean major action in the markets. However, because the Fed has been more accommodating this year than in its recent history, to say the least, no one expects a lot of breaking news there today…
But that doesn’t mean there isn’t plenty of important action to analyze and profit from. Let’s get into today’s markets…
The “Monster”-Caps Takeover
If you look at today’s chart patterns, you can see we have a nice upward trend, coming off the 50day MA, which we discussed yesterday. Click here for yesterday’s issue.
As we continue to see upward momentum in this rebound, the question has been:
Is what we call the “monsters of tech” going to participate in the rally?
As Barron’s explains: “Tera, the prefix for trillion, stems from the ancient Greek word for monster. And with a combined market cap of $6.7 trillion, these ‘monster’-caps have amassed remarkable influence to go with their size.”
What has been driving markets to the upside, particularly in the NASDAQ, has been just a handful of these massive stocks.
Netflix, Apple, Microsoft, Alphabet (Google), Amazon.com — you could even throw Tesla in there.
And what’s interesting is these stocks have not been participating in the rebound we discussed the past couple days.
But yesterday, that changed. We’ll have to see if that continues today, but…
One of the things we always want to look at in our trading tool chest is:
The Advance/Decline Line (Another Trader Tool)
The A/D is a technical indicator used to measure the number of individual stocks participating in a market rise or fall.
In the overall marketplace, looking at the A/D today, we are finally starting to get a bit of an uptick.
This is important because one of the big concerns with the apparent strength in the stock market is the fact that it’s really only been that handful of stocks driving markets higher, while the overall market was actually falling!
How can you have the overall market falling, when the indices are posting new, daily, all-time highs?
The reason is because the index is weighted based on market capitalization. This means those few but massive large tech companies can drive market action all on their own. Amounting to trillions of dollars, their action accounts for a massive chunk of the stocks being traded every day.
But now, the overall market is catching up with the tech monsters.
That bodes well for our current short-term bullish thesis on the market.
But, what does this mean for us today?
How to Trade a Monster
I want to focus on Netflix, Inc. (NASDAQ: NFLX), currently trading around the $495 level.
NFLX has an interesting chart — two big things to note:
We have a clear support area around the $470 level. But we don’t have a clear bullish chart pattern.
So the question becomes, how can we trade a stock like NFLX, with a slightly bullish bias, but where we want to make money even if the stock doesn’t rally like we might hope?
Again, it’s an interesting chart, but not a strong chart, because it doesn’t look strongly bullish, but it does have some support bearing.
Looking at Our Options on NFLX
If we go to the September 25 expiration options on NFLX, we can see that we’re very close to that 50% implied volatility that we noted was a good sign for options sellers. For context, see yesterday’s issue.
But 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 on NFLX for capped risk, and a quick 9-day 17%+ profit potential, click here to sign up for the free beta test of the Rude Awakening Pro.
But for now, I’ll leave you with this: Don’t pay much mind to the Fed. Like I keep telling you, play the markets as they come. This is a trader’s (NOT an investor’s) market!
That’s it for today.
But remember, if you have any questions, comments, or ideas you want to share, we’re here to help! Just email firstname.lastname@example.org. We can’t give you personalized investment advice, but I want to help make the Rude Awakening the best it can be for you, and your feedback and questions are crucial in that.
Editor, Rude Awakening