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Faltering Friday – Wrapping Up the Weak Weak

Well, that went about as expected.  

Remember, I can only tell you what is likely to happen in the markets and how to profit from it – the rest is up to you.  Of course, sometimes our "profits" are simply not losing money because we choose not to play a game that's hard to win.  That's a very hard concept for investors to grasp – the art of standing still at the sidelines but if you have 100% of your money and the market drops 80%, then you can buy 125% of the stock you could have afforded when the market was at 100%.  Yep, do the math!

So, not only does PATIENCE allow us to buy our favorite stocks at a discount but it allows us to buy more of them than we could have bought when they were at full price so if, for example, I wanted to buy AAPL at $140 last week and I had $14,000 to allocate towards but instead I decided to wait for a pullback of at least 20% and then it hit $112 and I pulled the trigger and bought 125 shares for the same $14,000.  Not only that but now, if AAPL rebounds and hits my target of +20% down the road at $168, now I have $21,000 for a 50% profit on my $14,000 whereas, had we bought 100 share for $14,000, we would now have $16,800 for a 20% profit.

Our profit is 150% HIGHER when we are PATIENT!  

That's without usuing options tricks or even having perfect timing, that is simply the difference between learning to be patient and not.  That doesn't just go for stock, of course, that goes for every options contract we sell or write – the difference between jumping in an chasing entries or patiently waiting for the right entry can DRASTICALLY affect your portfolio's performance.  Try it!  

price channel indicator mt4

You simply have to learn to acccept that stocks (and options) tend to move about in a channel and, if something is high in the channel – you should simply not buy it or, if you own it – then sell it.  If something is low in the channel, THAT is when you want to buy it or, if you own it and you still think the stock has value – then hold on or even increase your position.  Another thing we like to do when stocks are low in the channel is sell puts to people who think it will go even lower.  

price channel strategy

When a stock or commodity falls out of it's channel – STOP PLAYING IT!  Why?  Because it's become unpredictable and why on Earth would we waste our money GUESSING when there are so many PREDICTABLE stocks we could trade instead.  That's why we rarely play momentum stocks – they don't stay in their channels so we are taking on too much risk trying to guess where they're going.  

Here's one of my favorite examples:  When AT&T (T) is at $40, what do we do?  We SELL it!  When T is under $30, what do we do?  We BUY it.  In fact, T is our example trade in our 2014 instructional video: "How to Buy a Stock for a 15-20% Discount" when it was $33.70 and today it's $28.91 but we sold options to get a net $28 entry and we've collected $12 in dividends (not counting more options sold along the way) so we're at net $16 and up $12.91 (80%) on a stock that's down 10% – how's that for outperforming?  

Another way we use channels is to play the Futures.  As with stocks, we DON'T play the Futures when they are in the middle of a channel, we play them in the top of the bottom of a channel, when their behavior is more predictable and that means we haven't played them much all summer but, this week, we decided or 5% Rule™ was back in play and in Monday's "The Weak Ahead in the Markets" we decided to short the S&P 500 at the 3,420 line and we've done that very successfully all week – especially yesterday, when we got a very nice drop.  

Making $3,500 per contract in a single day is not usual in our Futures trades but we waited PATIENTLY for a good time to play the S&P short and we waited PATIENTLY for the S&P to cross back under the line we've been using to short all week and this time we got a very nice drop into the close that allowed us to have some very nice gains.

Heck, the title of yesterday's PSW Report was "Thursday Failure at 3,420 – Are We Heading for a Real Correction?" - I don't think we could have been any clearer about our expectations, right?  We "only" made $2,000 per contract on Wednesday's Live Trading Webinar short call on /ES but we had a nice, fake rally back to 3,420 yesterday morning – so we shorted it again!  Come on people – this is not complicated….

Today our shorting lines are 27,500, 3,350, 11,200 and 1,515 and, if you don't know what that means – then you are not a PSW Member.  Very simply though, we wait for 2 of the 3 indexes to cross below and then short the 3rd index as it crossed under and then keep very tight stops at those lines if ANY of them cross back over but, once the 4th index confirms the drop – we can relax a little and just wait to see how low the momentum takes us although, of course, we already know it's 3,320 on /ES as our next stop (see this week's notes).  

What's going to happen next week?  I don't know yet!  That's why my predictions are so accurate – I don't force myself to make them – I only make them when I'm pretty sure and that way I'm wrong less than half the time and people think I'm a genius but I'm not – I'm just PATIENT!  

Have a great weekend, 

- Phil


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  1. Good Morning.


  2. Phil / SPWR – what are your thoughts on the guidance / presentation from them? Have you gotten a chance to review?  do you think still  15 is a fair price ?


  3. TOS rolled to /esz20 contract which is trading 10 to 11 points lower than the u contract


  4. Good morning!

    SPWR/Batman – You do realize that we now own 1,527 shares of SPWR for each 1,000 we originally owned, right?  That was from the split on 8/27.  So $10 is the new $15 and the stock is holding up very well and we also own 12.25/100 shares of MAXN(V) as well.  I have to do homework to make adjustments to the portfolios to reflect this.

     /ES/Bert – That's indicating sentiment is lower into next Q.  I looked at my screen yesterday and was like "WTF" because my /ES(U20) trade had disappeared but then I realized they rolled /ES already (seems soon).  Doesn't change the 5% Rule, /ES is just sentiment, wherever it is – 5% Rule is MATH!


  5. And check out that channel in SPWR!  Imagine if someone were smart enough to bang the table on them in the bottom of the channel and then cash out a bit at the top… Genius!  

    Wile E. Coyote, Super Genius on Twitter: "I absolutely love it when someone  brings up the "fair share" argument. When I challenge them with "who gets  to decide what is a fair


  6. And will Biden be good or bad for solar companies?  See, these are not brain-teasers, are they? 


  7. And down we go again…


  8. im loving this multiple index shorting technique. takes the emotion out of it. Up $900 on a quick /NQ short. thank you !


  9. Are lower ES quotes due to sentiment? Thought they were because of the quarterly SPX dividend (hence every future expiring ES is lower than the previous expiry by 10-15 points per quarter). 


  10. Phil / WBA,

    Would you suggest getting into WBA at today's price of 34.13?


  11. KO not sure of Phil's play but I hold the Sept. 50 short call. need to be rolled, as KO pays .41 9/14. Present premium .70. Stock trading at 50.47. so one has only .23 cents to cover the .41 cent div.!!!!


  12. KO rolled 50 call to Oct 52.5 call for .14 cents


  13. Here is a replay of this week's webinar. Sorry for the delay.

    .https://youtu.be/qZeXCIky9gM


  14. SPWR — so are you saying we should have two sets of options from our original SPWR options?

     

    TOS only shows this from my original 5/10 SPWR BCS as my current position…

    100 (MAXN 12:25.0) 21 JAN 22 5 CALL

    +15

    497

    3.45

    $13,275.00

    8.850

    +.175

    $8,089.50

    $262.50

     

     

    100 (MAXN 12:25.0) 21 JAN 22 10 CALL

    -15

    497

    1.9533

    ($8,587.50)

    5.725

    +.10

    ($5,667.00)

    ($150.00)

     

     


  15. Phil/WBA

    GOOD morning.

    we discussed rolling the $35 calls and MY 2022 $30 calls that I paid $10.49 (now $7.90) for a couple of weeks ago with the stock at $39.

    Last week, I covered the $30 calls with the 2022 $40 calls for $5.40 (now $4.90)when it looked like the stock was weakening around $38 or so.

    Question arises, Is this the time to roll down the long $30's to the $25's for $3? Or is there a better trade?

    or do nothing?


  16. Phil/T/morning post

    Thanks for the reminders on proper investing techniques.

    I have owned T for 3+ years with an average price of $37. Along the way, I have sold calls against the relatively large position as well as puts when I could. I just did not keep track of the exact amounts.

    Regardless, I am now earning $0.51 per share per quarter (7% annual return on current price) and the size of position pays for my monthly living expenses easily.

    So, question arises if I should just let things be and keep collecting my dividend, hope for a rise in the stock price as the company pays down debt over the next 2 years or so or is there a more efficient use of my funds? Or buy more at this price?


  17. T/Phil – I'm interested in your thoughts on T as well. Thx.


  18. IBM/ Phil

    I have :

    500 shrs IBM (from a put assignment) with basis of $107

    covered with -5 Jan 22 $150 call @ 11.50

    -3 Jan 22 $80 Put @ 8.5

    -2 Jan 22 $125 Put @ 23.9

    +3 Jan 22 110/140 BCS @ 14

    -2 Sep 20 $135 Call @1.75

    Thinking of selling 500 shrs and buying more +5 Jan 22 110/140 BCS @ 12.50 or do nothing and collect dividends and short call premia?


  19. Good job Monk.  That's right, no emotion, no guessing, you just watch for any of them to shift and assume they all will and take the profit, then wait for the lines to cross again for another round.  

    Dividend/RN – That too.  Still, /ES is a bet on where they think it will be on the payoff date (12/31), so it's always sentiment.  

    WBA/Jij – Sure, I picked it again last week, now it's cheaper.

    KO/Yodi – Reasonable at $50.77, which is $220Bn, but only make $10Bn so not really a bargain.  I would not start at this price.  

    SPWR/Jeff – Yes, not sure when it gets reflected in the portfolios properly.   Maybe it won't and we'll just end up riding these old ones out.  The numbers are all out of whack but SPWR is at $10.55 so anything over $10 pays us net $5, as planned – $7,500 in your case.  


  20. Phil / Futures.  
    is it possible to apply the methodology to longs too? 


  21. Monk/futures

    Yes, as long as you are keeping track of the lines. In general, you need to be clear on what you are expecting of the market direction so you don't play the wrong crosses. 


  22. Hi All,

    I was out 2 weeks. Was there a portfolio review done? if yes do anyone has a link to the post?

    thanks and regards


  23. Kind of easy to see where we're going to bounce in this case, right?

    WBA/Maya – This is not independent of where you are in your allocation cycle, of course.  It is much easier if you tell me what you have than what we discussed so I can try to guess what you have but I'll guess you have $30 calls at $10.50 covered with $40 calls at $5.40.  You have 18 months and, if it goes higher – you're fine and, if not, it will be cheaper to roll ($2.50/$5 or less) so why rush?  As I was saying above – PATIENCE!  2023s will be out soon, then I'd look at the rolls.  Do you REALLY want to own WBA for $25.50?  Then you can sell the $30 puts for $4.50 but if you don't REALLY want to own WBA for $25.50 – why would you be putting more money into calls that only pay off if they're over $25?  

    T/Maya – Because they pay such a big dividend, the stock is not likely to go up all that much so it's always good to sell calls.  Let's say you have 100,000 shares paying you $50,000/qtr but you can sell 200 Jan $30 calls for 0.85 ($17,000) and 200 Jan $26 puts for 0.85 ($17,000) and there's a bonus $34,000 for the next 4 months between $26 and $30.  If T goes higher, you get $34,000 and sell 1/4 at $30, which is up $1.10 from here x 20,000 shares is $22,000 bonus @ $30 ($600,000) and, to the downside, you net into 20,000 more shares for $26 – $1.70 = $24.30. 

    So, you're downside worst case is owning 20,000 more at $24.30, which is 20% below the current price and your upside worst case is dropping back to 80,000 shares while cashing out with $634,000, which is $31.70 so up about 10% from here so you can re-buy or sell 200 2022 $33 puts, which are now $6.70 so $130,400 more cash to go with your 80,000 shares while you wait to see if you get re-assigned 20,000 more for net $26.30 (10% off the current price).

    Seems kind of silly NOT to do that then, right?

    IBM/Bai – It's a nice 5% dividend but you can do better with options so I would.  The $150 calls are $4.60, the $80 puts are $3.60, the $125 puts are $20 (nice and aggressive – I like it), the spread is whatever and the short calls will expire, so all good.  Of course I would sell the shares for a small profit and buy 7 more $110 calls at $19 to over-cover the 5 short $150s and then you can sell a couple of November whatevers but all good otherwise.

    Longs/Monk – Yes it is the same logic but you need to expect the market to go up so we generally only play that way at the bottom of the channel but you can do it playing for bounces if you like the action.  Just learn to take quick profits and quicker losses.

    And what Jeff said.

    Reviews/Pat – Hopefully I'll have time to gather them up this weekend.  I haven't been transferring them to our Review section as I should.

    Have a great weekend folks, 

    - Phil










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  26. Phil – thanks for the IBM adjustment.