| Are you a new member? | | 1. | Read our Blueprint for Options Success here | | 2. | Learn to trade Short Puts and Covered Calls | | 3. | Watch our most recent Live Webinar here | | 4. | Watch our New Member Webinars here and here | Dear Savio, The S&P 500 set another all-time high on Tuesday with a close of 4291.80. That's good news, but it also obscures the fact that breadth was very low. A little less than half (227) of the stocks in the S&P 500 advanced on Tuesday. Normally, we wouldn't be very concerned about this issue on a day when the index's gains were relatively small anyway. However, in this case, the losers were 11% larger than the winners. This tells us that there is a minority of leaders pulling the index higher. If we look at the S&P 500 on an equal weight basis where all 500 stocks have the same influence on the index, then the S&P 500 isn't really at a record at all. A convenient way to look for this kind of divergence is to use an ETF that tracks the S&P 500 such as the SPDR S&P 500 ETF (SPY) and one that tracks the same index on an equal weight basis like the Invesco S&P 500 Equal Weight ETF (RSP). What we would rather see is a period when the equal weight index is outpacing (or at least matching) the standard version. In the following chart, you can see the current divergence in breadth compared to the breakout in mid-March when the equal weight average was doing much better. More breadth means a breakout is more likely to lead to significant gains. 
Fig. 1 – Daily Comparison Chart of SPDR S&P 500 ETF (SPY) & Invesco S&P 500 Equal Weight ETF (RSP) – Chart Source: TradingView To be clear, this technical issue isn't a bearish signal. Historically, divergences like this are predictive for volatility rather than declines. This week, the largest stocks in the index are posting gains, but if they stumble in July, then the index will likely follow. That means stocks like Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), Facebook (FB), NVIDIA (NVDA) and JPMorgan (JPM) had better remain stable while we wait for the smaller index components to catch up. Can the Divergence be Resolved? The good news is that market fundamentals are still in favor of a positive resolution to the market breadth problem. Economic growth indicators are still positive. According to the Conference Board, consumer confidence is at a 16-month high, and housing prices are still running higher, which supports spending by homeowners. We feel these factors give the market enough underlying support to avoid any serious drawdowns while we wait to see what the latest round of infrastructure spending talks generates. Part of our confidence comes from new momentum in the transportation sector. The quarterly earnings report from FedEx (FDX) last week included many positive signs that economic activity is still trending in a positive direction. Although there were many operational concerns, FDX brought in $22.6 billion in total sales during its fiscal year that ended May 31. This compares to $17.4 billion for 2020. We care about this because transportation and shipping stocks have been reliable predictors for growth and expansion since the early days of the nineteenth-century stock market. In fact, investors are already bidding the stock higher in anticipation that management will resolve the operational issues that dragged on the company's profitability. 
Fig. 2 – Daily Chart of FedEx (FDX) – Chart Source: TradingView If we weigh the evidence as impartially as possible, the 1-3 month outlook for the market is positive. We think investors are waiting for the start of earnings season in two weeks for final confirmation. If the big banks, tech and retail firms match the underlying performance we have seen from companies that have reported early (FDX, NKE, PAYX, KMX), then market breadth will improve. The Bottom Line As we mentioned last week, investors should continue to favor the leading sectors including technology, real estate and consumer discretionary. It's not a coincidence that the individual leaders in the major indexes are overrepresented in those sectors. More breadth should make the pool of attractive opportunities wider, but we don't expect a material shift in sentiment until earnings season kicks off in July. Some forward momentum in infrastructure talks in Washington could also help increase confidence. The back and forth in the legislature is too tedious for us to spend time on in this update, but we feel comfortable that a deal is still likely before the fourth quarter. Our strategy at this point is to continue to focus on the market leaders with the best income potential. Although we have recently eased back into the tech sector more heavily (new positions in AAPL and MSFT), we have continued to be careful about taking on too much extra risk, and we don't expect our approach to change before the end of July. Strategic Trades Review We’ve redesigned our Strategic Trader Portfolio! You can now quickly and easily view the long-term history of the positions we’re trading around. Just click the Show All button under any open position to show its past trades. We’ll be updating this portfolio and making improvements over time. Let us know what you want to see by emailing us at Feedback@InvestorPlace.com. We’ll be discussing each of our current trades in tonight’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.
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). 
Starbucks (SBUX) – On June 30, we recommended you "sell to open" the SBUX July 30th $109 Put Write for $1.80 or more. We are still very bullish on consumer stocks, and we expect SBUX to remain within its recent consolidation range above support and our strike price. If you have not already established a position in SBUX (or are working on scaling into a position), and the option is trading at, or above, our recommended minimum price, we still recommend entering this trade. 
Take Two Interactive (TTWO) – On March 12, we recommended you take possession of TTWO common stock at $197.50 per share when our TTWO March 12th $197.50 Put Write expired in the money. On June 29, we recommended you "sell to open" the TTWO July 23rd $192.50 Covered Call for $0.75 or more. Although TTWO has bounced recently, we expect the stock to consolidate at resistance briefly. That should give us time to bring in some extra income by selling more calls. If you have not already established a position in TTWO (or are working on scaling into a position), we recommend waiting to enter the long stock position. However, if you currently own the stock, we still recommend opening the covered call position. 
Apple (AAPL) – On June 28, we recommended you "sell to open" the AAPL July 16th $132 Put Write for $1.05 or more. As interest rate pressures continue to ease, we like the potential for AAPL to rise in the short term. Now that the stock has broken short-term resistance in the $135 range, we have a good shot at closing the position early. If you have not already established a position in AAPL (or are working on scaling into a position), and the option is trading at, or above, our recommended minimum price, we still recommend entering this trade. 
Microsoft (MSFT) – On June 25, we recommended you "sell to open" the MSFT July 16th $255 Put Write for $1.05 or more. As with our AAPL trade, falling interest rates should work in our favor with MSFT. The stock is already well beyond resistance, and we do not expect it to return to our strike price before expiration. If you have not already established a position in 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 this trade. 
Logitech (LOGI) – On June 21, we recommended you "sell to open" the LOGI July 16th $120 Put Write for $1.60 or more. LOGI has pulled back from its recent high around $140, but it appears to have found support above the high of $120 the stock reached in February. We expect this support level to hold through expiration. If you have not already established a position in LOGI (or are working on scaling into a position), and the option is trading at or above our recommended minimum price, we still recommend entering this trade. 
Micron (MU) – On May 7, we recommended you take possession of MU common stock at $88.00 per share when our MU May 7th $88 Put Write expired in the money. On June 16, we recommended you "sell to open" the MU July 16th $90 Covered Call for $1.35 or more. MU appears to have finally found support at $76 and is starting to rebound in the run up to the company's upcoming earnings announcement this afternoon, after market close. If you have not already established a position in MU (or are working on scaling into a position), we recommend waiting to enter the long stock position. However, if you currently own the stock, we still recommend opening the covered call position. 
Bank of America (BAC) – On June 15, we recommended you "sell to open" the BAC July 9th $40 Put Write for $0.42 or more. BAC dropped below our strike price two weeks ago, but it has finally recovered and is climbing higher once again. We are looking for an opportunity to take our profits off the table on this trade. If you have not already established a position in 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 this trade. 
Disney (DIS) – On April 9, we recommended you take possession of DIS common stock at $195.00 per share when our DIS April 9th $195 Put Write expired in the money. On June 14, we recommended you "sell to open" the DIS July 16th $195 Covered Call for $0.55 or more. DIS continues to consolidate in a tighter and tighter range. Eventually, we think DIS is going to break out to the upside, but it may take a little longer yet. If you have not already established a position in DIS (or are working on scaling into a position), we recommend waiting to enter the long stock position. However, if you currently own the stock, we still recommend opening the covered call position. 
Chegg (CHGG) – On March 19, we recommended you take possession of CHGG common stock at $100.00 per share when our CHGG March 19th $100 Put Write expired in the money. On June 9, we recommended you "sell to open" the CHGG July 16th $85 Covered Call for $0.95 or more. CHGG completed an inverted head-and-shoulders bullish reversal pattern last week. Although we still expect CHGG to recover, the odds of closing above our strike by expiration are still low enough to avoid being called out. If you have not already established a position in CHGG (or are working on scaling into a position), we recommend waiting to enter the long stock position. However, if you currently own the stock, we still recommend opening the covered call position. 
Southwest Airlines (LUV) – On June 4, we recommended you "sell to open" the LUV July 2nd $57 Put Write for $1.25 or more. LUV broke below our strike price and has reached short-term support near $53 per share. We are still optimistic that travel forecasts will improve as the vaccine campaigns continue to make progress. If you have not already established a position in LUV (or are working on scaling into a position), and the option is trading at or above our recommended minimum price, we still recommend entering this trade. Closed Positions Target (TGT) – On June 24, we recommended you "buy to close" the TGT July 9th $225 Put Write at market. The position was closed for a return on margin of 3.3%. Webinar Preview Join us TONIGHT at 8 p.m. ET for a Live Webinar! 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 | 
Comments
Post a Comment