Trade The Journey

Trade The Journey

Happy New Year

 

Happy New Year

I wish everyone a Happy New Year.

Here is how the indices performed this past year:

S&P +28.79%, Russell +15.41%, Dow Jones +20.23%, Nasdaq +23.2%.

Sectors:

Utilities best-performing industries recently: Electic, Gas, and Water.

Consumer Staples best-performing industries recently: Household, Food & Beverage Retailing and Food products.

Healthcare best-performing industries recently: Pharmaceutical, Healthcare providers and services, and Healthcare Equipment & Suppliers.

Weekly jobless claims hit a 52 year low and fell below market expectations. Employers are still facing labor shortages and challenges retaining workers. Alongside steadily rising demand, companies continued to build up their inventory. Pending home sales dropped, amid a decrease in contract transactions, as the mortgage rates head higher alongside housing prices due to a tighter supply.

As news outlets began to report on the Omicrons’ symptoms, it became clear that this variant was not as severe as the Delta variant. Markets rebounded, and the treasuries showed resumed interest in returning to more risk.

The Five-year Treasury yields remained above their 20 and 50 simple moving averages and ended the week at 1.23%. The recent highs were made back in November at 1.38%. The ten-year Treasury yield briefly rose above the 50 sma but ended the week below the 50 sma at 1.51%. The 20 sma is below the 200 sma but should cross above next week.

The thirty-year Treasury yield remained below its 200 sma and ended the week at 1.90%. The 20 sma crossed below the 50 sma in November and looks to stay below for the foreseeable future.

The dollar has remained steady against other currencies as the FED continues its tapering. The Fed has also signaled three rate hikes for the current year. The personal consumption expenditures index (PCE), the Feds’ preferred indicator for gauging inflation, has remained elevated. The PCE is a broader measurement of inflation than the CPI.

Here is a link for a better description of the PCE:

https://www.investopedia.com/terms/p/pce.asp

This past week featured low volume, although some indices made new highs due to the holidays. The Santa Claus rally was in full force this year, an end-of-year rally that takes place on the last week of December and the first two days of the year.

The Td Ameritrade blog market update section is an excellent tool for learning about market trends and events like the Santa Claus rally. Over the years, I’ve developed a list of market news outlets that I read at the close to get a sense of what more experienced market professionals are saying about market developments.


Technical Story:

Russell 2000

The Russell bounced off its support level at 2139 and met resistance at its 200 sma. The Russell broke above its resistance of 2317 in November but slowly declined and has yet to make its way back to the Resistance level. It’s hard to tell if the Russell will have any trend in the foreseeable future.

S&P 500

THIS PAST WEEK, the S&P made a new high and recovered quite nicely from the Omicron news. I drew a possible support level at 4739 and would like to see the S&P test this level before moving higher.

Dow Jones

The Dow made a new high this past week. 36527 served as some resistance, although the Dow made a new high. I didn’t think the Dow would recover as it did. I drew a reference level at 36179, but I’m unsure how well it will hold.

NASDAQ

The Nasdaq recovered but met resistance at 15848. The 50 sma could serve as support or future resistance. It looks like the Nasdaq will remain in a sideways trend for the foreseeable future.

Bitcoin is a new form of currency that I’m sure everyone either knows or has heard about, and some are touting as an inflation hedge. Cryptocurrency is a digital form of currency that is still in the beginning stages, being that it is relatively new to the world. There are hundreds of crytos being developed and released, some are based on memes and fun ideas, and others can solve real problems.

Bitcoin has been facing resistance at the 50,000 level and has not returned to its all-time high of 69,355. I included a weekly chart of Bitcoin below in which you can see it’s been a range for quite some time. It’ll be interesting to see what happens this coming year.

January 6, 2020 Bitcoin was $8,224, a year later it’s close to $50,000 an almost 1100% return.


Paper Trading Options:

I’ve been paper trading options these past couple of weeks to get experience trading options. Options are complex instruments to learn about, let alone trade. They move much differently than some of the books on Options profess.

I started off trading calls and puts outright but wasn’t too successful. Sure, I made a couple of winning trades, but for the most part, trading options in the short term are much trickier than trading.

It took me some time to see why was losing money; although the stock was moving in my favor, the option wasn’t. Often, the vega, which is the greek that responds to implied volatility, would hurt my long position more than I anticipated. The theta, which is the greek that responds to time value, would often drain the value of my long position before the stock moved.

Attempting to determine the direction a stock may take in a short amount of time often proved to be a losing proposition. After a while, I began to think about where the stock wouldn’t go, and that helped me structure trades that didn’t depend on direction as much.

Spreads are much better for profitability for me and allow me some wiggle room in my forecast.

My biggest loser came by way of Hilton (HLT). I couldn’t get the forecast correct and paid dearly. Most of the positions I placed on HLT were either long or short, both calls and puts without a hedge.

With options, strategy is essential because of the way options react to volatility, time, and stock price movement. I will be working more on spreads this coming week unless I see an opportunity to place a call or put outright.

Paper trading is helping me develop the skills needed to trade options successfully without placing real money on the line. Since options are leveraged, I would recommend paper trading until you learn how they work in real-time.

You can lose a lot of money fast being on the wrong side of an options trade.


Cash flow management this past week:

I have one word to describe my cash flow management for the past week, terrible. I tend to spend a bit more than usual during the holiday season, but I spent a lot more this season. I spent the weekend canceling memberships I don’t use as much or could live without.

I’ve been wondering where my money has gone these past couple of weeks, which isn’t a good sign. This coming week, I will be more attentive to my spending habits as I will need the money moving forward.

Grade: D+

Reason: I made some nonessential and unwise purchases.

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