Trade The Journey

Trade The Journey

Insight 10-31

Top of the Morning! I hope everyone is enjoying their weekend and preparing for the trading week ahead. This past week, I decided to place a bullish options position on Ford (F) with an expiration of two weeks. Earnings up until the date I placed the options position were mostly good with the expectation of a few companies that missed or provided forward guidance that showed slowing growth.

Usually, I place a weekly options position with the intention of closing it before the expiration date nears because of the theta. This Ford options position was a little different because I wanted to remain in the position during the earnings release.

The day of the earnings release involves so much volatility that it can be quite difficult getting your position filled or the options position is too expensive. I wasn’t sure if Ford would beat the earnings and revenue forecast or completely miss it. Ford already had a major write-down, calling it quits on an autonomous driving company that it had invested in. Ford also has also been having trouble securing parts.

Normally, this would lend itself to a bearish outlook but with everything that’s been happening in the markets, the outcome of any position is anyone’s guess. I held Ford as it went up, reaching its most recent high, and as it fell, nearing a low. It’s a challenge keeping a position open especially when the stock is volatile but I kept it open.

Ford released its earnings and they missed on earnings but beat on revenue. The day after the earnings report, Ford retreated to the low made within the last few days and I lost everything I had made when Ford reached its most recent high.

I had a choice, I could close the position taking a loss or wait to see what happened as the day went on. In the morning and late afternoon, the market is usually the most volatile. Depending on your profit/loss target, holding the position open during these volatile times is hard to do but sometimes it’s the best choice.

As Ford reached it’s low, buyers stepped in and Ford made its way toward is most recent high of $13. I set a limit order which is an order to close the position when the stock is at or near this price. It closed exactly at the price I set the limit for and I ended the day with a nice profit.

Economic

Case Shiller US national, 10-city, and 20-city all fell for the month. The case Shiller indices tracks changes in the value of residential real estate nationally. Mortgage applications fell 1.7% from a week earlier. Loan application volume fell 1.7% from a week earlier. The refinance index fell 0.1% from a week earlier and it’s down 86% from a year ago. The purchase index fell 0.2%.

Rates for a 30-year fixed mortgage reached 7.16% for conforming loans and 6.79% for jumbo loans. The adjustable rate share of mortgage applications fell from the previous week. New home sales for September fell close to 11% from the previous month. The average sales price was $517,000.  At the current rate, there are a supply of 9.2 months. New homes not started but sold rose in September, however new homes under construction and completed fell sharply.

New homes for sale fell for the $500,000-$749,000 range, stayed about the same for $400,000 – $499,000, and fell slightly for the $300,000- $399,000.

Consumer confidence was down, as was the present situation and expectations index. The present situation index fell sharply due to rising prices. Intentions to purchase big-ticket items remained.

The final numbers for consumer sentiment from the University of Michigan showed sentiment rising slightly for October. Consumer expectations fell but economic conditions’ for the future outlook rose. Higher-income earners voiced concerns about the economy due to the stock market and housing market. Buying conditions for durables rose 23% and concern about the probability of a recession is rising.

Personal income increased by 0.4% in September, as did disposable income. The PCE increased by 0.3% and excluding food and energy, it rose 0.5%. Current dollar personal income increased and was led by private wages and salaries in both the goods and services industries.

Current dollar PCE increased in both goods and services, increasing sharply for services. Housing spending led the services spending and also increasing was international travel and transportation services. Goods were led by nondurable spending on prescriptions and motor vehicles & parts. Food prices rose by 0.6% and energy prices fell by 2.4%.

The first estimate of GDP for the third quarter rose above expectations, coming in at 2.6% This is the first estimate, so it’s subject to change. The second estimate will be released on November 30. Real GDP, increased in Exports, consumer spending, nonresidential fixed investment, and government spending. Residential Fixed investment and private inventory investment fell in the 3rd quarter. Imports also fell in the third quarter.

Microsoft, Meta, Google, and Amazon all had disappointing earnings reports. A common theme for nearly all four companies was higher costs, especially for Meta which is spending a lot of money developing Metaverse. A theme common to all four is the strong dollar which is causing headwinds for companies moving forward. With the Fed continuing to hike rates and the yield differential rising between other currencies, will the dollar continue to strengthen?

With the recent release of the GDP report, one could argue that maybe we bypassed a potential recession. Unfortunately, rising rates will take time before their results are seen in the economy so continued volatility is to be expected.

With all the forecasts and predictions available, it’s a challenging environment to trade and place investments. If you’re trading, I would recommend keeping a profit/loss target in mind. If your investing, it’s hard to call a bottom but it’s never too early to start identifying companies you’d like to invest in at the right time or price.

This past week in review:

This past week went well but it could have been better. So far, I’ve saved close to 10% from all of the paychecks I received in the last twelve months. Its not the best but it’s a start. My goal is to get close to saving 20% of my income. It’s possible, it would just require cutting my discretionary spending even further.

Grade: C

Reason: Maintaining implementation of my spending plan.

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