| Are you a new member? | | 1. | Read the Blueprint for Options Success report here | | 2. | Check out our guides to Short Puts and Covered Calls | | 3. | Watch our most recent webinar here | | 4. | Watch our New Member Webinars here and here | Dear Savio, October can be a scary month if you’re a superstitious stock trader. Here’s why… On October 29, 1929, the stock market crashed on Black Tuesday and ushered in the Great Depression. Not to be outdone, on October 19, 1987, the stock market crashed again on Black Monday, wiping out more than 20% of the market’s value in a single day. Nervous yet? Do you have your lucky rabbit’s foot handy, just in case? Well, we don’t think you’re going to need it this year because the stock market appears to be doing just fine on its own. You see, there’s nothing magical, or cursed, about October. It’s all quite natural really. Big movements -- both bullish and bearish -- tend to occur when a lot is going on in the world, and October happens to be a month where a lot of important things can happen. For instance, every four years, investors look for an October surprise in the U.S. presidential election. Plus, third-quarter earnings season kicks off in October, and earnings season always has the potential of ratcheting up market volatility. So, what about this October? Everything we are seeing right now tells us that bullish investors are willing to give the stock market the benefit of the doubt for now. Up-Trending Channel The first thing we’re seeing is a strong, up-trending channel on the S&P 500. Looking at the daily chart of the index in Fig. 1, you can see that while the S&P 500 has experienced a recent pullback, it has not broken below the longer-term up-trending support level that forms the bottom of the channel it has been in since recovering from its bearish correction in April. 
Fig. 1 -- Daily Chart of the S&P 500 (SPX) -- Chart Source: TradingView The bullish bounce up off a confluence of support levels -- both up-trending and horizontal -- just above 3,200 confirms that the level that served as resistance before the S&P 500’s bearish pullback in June is now holding as support in the aftermath of the index’s bearish pullback in September. Plus, the S&P 500 is still well above its 200-day simple moving average, telling us the index’s longer-term bullish momentum is still intact. XLY/XLP Relative Strength Chart One of our favorite methods to gauge whether bullish sentiment is getting stronger or is starting to fade is to create a relative strength chart comparing the two consumer-based stock sectors against each other: consumer discretionary and consumer staples. This method is especially useful during this period of coronavirus-driven uncertainty. Consumer discretionary stocks represent companies that tend to do better when consumers have extra money to spend and enough confidence in their economic future to spend it. Think of companies like Amazon (AMZN), Home Depot (HD) and McDonald’s (MCD). Consumer staples stocks represent companies that tend to do well even during economic downturns. Think of companies like Procter & Gamble (PG), Coca-Cola Company (KO) and Wal-Mart (WMT). These companies do well because people tend to continue buying shampoo, Coke and general supplies even when the economy stinks. As you can see in Fig. 2 -- a chart that shows which stock sectors tend to outperform during various stages of the business cycle -- consumer discretionary (Stage 2) and consumer staples (Stage 5) are at opposite ends of the cycle. 
Fig. 2 -- Sector Rotation during the Business Cycle Consumer discretionary stocks typically start to outperform near the bottom of the business cycle when the economy is shifting from its contraction to its expansion phase. Consumer staples stocks typically start to outperform near the top of the business cycle when the economy is shifting from its expansion phase to its contraction phase. By comparing these two stock sectors, we can see whether Wall Street is preparing for continued expansion or continued contraction. When consumer discretionary stocks are taking the lead, we can be increasingly confident that traders believe both the economy and the stock market are going to be doing well in the future. When consumer staples stocks are taking the lead, we can be increasingly confident that traders believe both the economy and the stock market are going to be doing poorly. You can easily compare the performance of these two sectors by creating a relative strength chart of the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR Fund (XLP), where XLY is the first exchange-traded fund (ETF) in the pairing and XLP is the second (XLY/XLP). When the XLY/XLP relative strength chart is moving higher, it tells you that XLY is outperforming XLP and the S&P 500 is likely going to be doing well. Conversely, when the XLY/XLP relative strength chart is moving lower, it tells you that XLY is underperforming XLP and the S&P 500 is likely going to be feeling some bearish pressure. You can see in the XLY/XLP relative strength chart in Fig. 3 just how bullish sentiment on Wall Street has been since the S&P 500 reached its low on March 23. 
Fig. 3 -- XLY/XLP Daily Relative Strength Chart -- Chart Source: TradingView What’s encouraging is the chart has not only maintained its longer-term bullish uptrend but also broken out of its latest consolidation range with a bullish surge higher. The VIX Two weeks ago, we looked at the CBOE S&P 500 Volatility Index (VIX), which is also known as the “fear index” because it is such a helpful gauge to measure how worried traders are that the S&P 500 might suddenly drop within the next 30 days. When the VIX starts moving higher, it is telling you that traders are getting nervous. When the VIX starts moving lower, it is telling you that traders are gaining confidence. We discussed the chart shown in Fig. 4 and said there were three directions the S&P 500 might move based on where the VIX went: - If the VIX breaks through the current horizontal support level and starts dropping down toward number 1 on the chart, look for the S&P 500 to climb toward its all-time high of 3,588.11.
- If the VIX continues to bounce up off the current horizontal support level at number 2 on the chart, look for the S&P 500 to consolidate for a while.
- If the VIX breaks above down-trending resistance at number 3 on the chart, look for the S&P 500 to fall back down below 3,300.
Fig. 4 -- Daily Chart of the CBOE Volatility Index (VIX) -- Chart Source: TradingView We said we thought it was most likely that the VIX would follow option 2. So, what happened? As you can see in the daily chart of the VIX in Fig. 5, the index followed option 2. 
Fig. 5 -- Daily Chart of the CBOE Volatility Index (VIX) -- Chart Source: TradingView This tells us that traders are not concerned about an imminent pullback for the S&P 500. In fact, the VIX is still low enough to potentially test its current support level, which could be extremely bullish for the stock market. The Bottom Line Yes, there has been a lot of short-term bearish noise in the stock market the past few weeks as the S&P 500 has pulled back from its all-time high. However, short-term bearish pullbacks are normal during longer-term bullish uptrends. We expect 3,200 to hold as support while the S&P 500 explores climbing back up toward its recent highs during October. Strategic Trades Review We have recommended several long-term positions that we are managing through long and short stocks, short puts and covered calls to take advantage of longer-term trends. When it's time to open or close a trade, we'll send you alerts via e-mail. For more info about our Strategic Trader positions, you can read trade alerts and view our portfolios. You can also see more trade-specific details by clicking on the trade links below. The strategic trades listed in the table below summarize our current level of exposure (short puts, long and short stocks, covered calls, etc.) to the stocks we have recommended and our cumulative returns to date. 
The cumulative return of each position includes the profit or loss from any exposure we have had to the stock since the original recommendation. Click here to view a short educational video that explains how and why we're tracking the trades in our Strategic Positions Portfolio this way. We’ll be discussing each of our current trades in next week’s live Strategic Trader webinar. Click here to reserve your spot now. If you're new to options trading -- or if you'd like a quick refresher course on a specific aspect of options trading -- please visit our Education Center right here. We've created a large archive of high-quality instructional videos. And if you haven't checked it out yet, we also have a series of options selling courses in our Course Library.
We're confident they'll help you become a much better options trader, no matter what level you're at now. | Open Positions These are the Strategic Trader positions that are currently open and active (Charts courtesy of TradingView). 
Cisco Systems (CSCO) -- On Aug. 2, 2019, we recommended you take possession of CSCO common stock at $56.00 per share when our CSCO August 2nd (2019) $56 Put Write expired in the money. On Sept. 30, we recommended you "sell to open" the CSCO October 30th $41 Covered Call for $0.40 or better. CSCO is bouncing back up toward the down-trending resistance level that forms the top of the down-trending “wedge” the stock has been in for more than a month. We anticipate the stock will remain below resistance until expiration. If you have not already established a position in shares of CSCO, we recommend waiting to buy shares of the stock. If you already own shares and have not already established a covered-call position on CSCO, or are working on scaling into a position, and the option is trading at, or above, our recommended minimum price, we still recommend entering the covered-call trade. 
Microsoft (MSFT) -- On Sept. 25, we recommended you take possession of MSFT common stock at $215.00 per share when our MSFT September 25th $215 Put Write expired in the money. On Sept. 29, we recommended you "sell to open" the MSFT October 30th $212.50 Covered Call for $6.00 or better. MSFT is rallying higher from its September lows. We expect the stock to continue climbing toward resistance at $215 in the run-up to the company’s earnings announcement in late October. If you have not already established a position in shares of MSFT, we recommend waiting to buy shares of the stock. If you already own shares and have not already established a covered-call position on MSFT, or are working on scaling into a position, and the option is trading at, or above, our recommended minimum price, we still recommend entering the covered-call trade. 
Bank of America (BAC) -- On July 10, we recommended you take possession of BAC common stock at $25.00 per share when our BAC July 10th $25 Put Write expired in the money. On Sept. 28, we recommended you "sell to open" the BAC October 30th $25 Covered Call for $0.70 or better. BAC broke below the longer-term up-trending support level it had been interacting with since late March, but it appears to have found new support at $23. We expect the stock to continue bouncing back up toward our strike price as we approach the company’s earnings announcement on Oct. 14. If you have not already established a position in shares of BAC, we recommend waiting to buy shares of the stock. If you already own shares and have not already established a covered-call position on BAC, or are working on scaling into a position, and the option is trading at, or above, our recommended minimum price, we still recommend entering the covered-call trade. 
Hess (HES) -- On Sept. 21, we recommended you “short” HES common stock for $40.00 per share or better. HES has rebounded slightly this past week as oil prices have stabilized. However, as the number of coronavirus cases continues to tick higher, we anticipate global oil demand will decline, which should pull oil prices and HES lower. If you have not already established a position in HES, or are working on scaling into a position, and the stock is trading at, or above, our recommended minimum price, we still recommend entering this trade. 
Apple (AAPL) -- On Sept. 2, we recommended you “sell to open” the AAPL October 2nd $125 Put Write for $6.00 or better. AAPL is starting to push higher after dropping to a recent low of $103.10 in September. It has broken above both up-trending and down-trending resistance today. We still anticipate having shares of AAPL put to us when our put write expires in the money on Friday. If you have not already established a position in AAPL, we recommend waiting to enter this trade. 
iShares Investment Grade Corporate Bond ETF (LQD) -- On May 1, we recommended you “short” LQD common stock for $128.00 per share or better. LQD continues to drift lower in the down-trending channel that started to form in mid-August. We expect it to continue to slide lower as the number of coronavirus cases increases across the United States. If you have not already established a short position in shares of LQD, we recommend waiting to short shares of the fund. 
Wynn Resorts (WYNN) -- On April 1, we recommended you “short” WYNN common stock for $55.00 per share or better. WYNN is has dropped down to the bottom of the channel it has been in for nearly four months. We’re waiting to see if support at $80 is going to hold. If it does, we may have an opportunity to enter a new covered put. If you have not already established a short position in shares of WYNN, and the stock is trading at or above our recommended price, we still recommend entering the short stock trade. Closed Positions These are the Strategic Trader positions we closed since the last update. Starbucks (SBUX) -- On Sept. 28, we recommended you take profits and "buy to close" the SBUX October 9th $83.50 Put Write. The position was closed for a return on margin of 6.95%. Microsoft (MSFT) -- On Sept. 25, we recommended you allow the MSFT September 25th $215 Put Write to expire in the money. The position expired for a return on margin of 13.05%. Bank of America (BAC) -- On Sept. 24, we recommended you take profits and “buy to close” the BAC October 16th $25 Covered Call. The position was closed for a return on invested capital of 3.36%. Webinar Preview: Join us Tonight at 8 p.m. ET During tonight’s live webinar, we’ll review the weekly newsletter, discuss coming events in more detail and walk through our top trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week. And if you have any questions or comments you would like to send us in advance of the live session -- or anytime during the week -- you can write to us at feedback@investorplace.com. If you can't attend the session live, you can watch the archived version on our website in the "Webinars" section. It'll typically be posted within about two hours of the end of the live session. Sincerely, 
John Jagerson and Wade Hansen
Editors, Strategic Trader | 
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