Downtrend in a Bull Market
Welcome to today’s Rude Awakening…
We’re seeing another strong open today.
This makes for three trading days in a row with a strong open, but the past two days both ended up with a big selloff.
There’s a lot of vacillation going on.
The Three Candle Trick
When looking for trends, we usually want to see three candles in a row to indicate either an upward or downward trajectory.
We have been in a downtrend lately, with more than three red candlesticks in the past week or so of trading days.
Downtrends in a bull market (which, I remind you, we still are in!!) are almost always news-driven.
The news today is basically two-fold: covid and anything related to it, and the Fed.
Those two news items have been supplemented this week with questions surrounding a new stimulus package.
Treasury Secretary Mnuchen and Speaker Pelosi came out yesterday talking about this. And today might be a pivotal day in the marketplace, due to news items.
The question is, does Nancy Pelosi want a stimulus bill to pass before the election?
With Biden holding a long pattern of favored polling data, the thought would be that his passing this new bill at the start of his presidency would make for a great first week— a good thing for the Democrats.
So, where do we go from here?
Today should add some clarity. There is supposed to be an announcement this afternoon.
A Market in Vacillation
We are giving back some of the futures gains today…
We’re looking to see if today will follow the same pattern as Friday and Monday: a morning pop, followed by an afternoon selloff.
But, no matter what happens in the market, traders can trade!
With that being said, we want to look for stocks that are following the same overall market trends, to rip profits based on this vacillation through implied volatility (I.V.)…
The stock to focus on today is Netflix (NFLX).
With their earnings announcement coming up this evening, this stock has MASSIVE I.V.
If you remember, when the options on a stock hit 50% I.V. it means they’re ripe for profit-taking.
NFLX is currently seeing levels above 100%…
In the Rude Awakening Pro, we set up a high POP trade on Netflix for 11% gains in just 3 days, which amounts to a whopping 1,338% annualized rate of return.
It’s a trade that stands to make money whether the stock falls further, middles out, or even goes up somewhat.
We did this using options.
If you want to learn more about our Pro level trades, you will be able to sign up for our Rude Awakening Pro service very soon…
But that’s it for today!
Have a great rest of your trading day, folks.
We’ll talk again tomorrow…
Editor, Rude Awakening