Trade The Journey

Trade The Journey

Would you rather?

Top of the Morning. After taking another loss, I began to wonder, am I wasting my time?

But before I began the trade review, a small market review couldn’t hurt.

Another week of earnings maintained the tone of a recovering and resilient Economy, with most companies beating earnings. Apple and Amazon both missed earnings estimates citing supply chain challenges. Apple has already mentioned that it will have to delay the production of some of its products.

Amazon cited wage growth and inflation as costly expenses coming in at an extra $2 Billion. While looking through the Petco annual report, I was surprised to see how the Pandemic’s cost weighed on the company. Company incentives for frontline workers, sanitation products, and the expense of transitioning to a multichannel retailer heavily affected the company’s bottom line.

Multichannel retailing is a strategy that offers customers different channels to purchase their product or service. Interesting to note about Petco is that its stores are located 3-5 miles from 53% of its customers. During the Pandemic, people increased their addition of pets to their homes.

I’m not advocating Petco as an investment, but I am encouraging you to be aware of trends and causation. The trend is upward for pet ownership, which will also cause the expenses involved in owning a pet to go up.

Pandemic-related expenses continue to hinder companies’ bottom lines and probably will continue to do so looking forward.

Most companies were able to pass the higher costs of production and wages onto the customer. Customers adjusted to the prices increases and maintained their buying habits. There are signs that disposable income growth slowed while personal spending is still going up. Saving levels are also decreasing.

The financial news pundit believes that this bull run still has the energy left to make new highs. They cited the slow velocity of money as a reason for the continued bull run.

“The velocity of money is how often each unit of currency, such as the U.S. dollar or euro, is used to buy goods or services during a period.
The U.S. velocity of money was 1.427 in the fourth quarter of 2019. That means a dollar was used 1.427 times in the past year.”

All this means is that money is on the sidelines, waiting to be invested or spent. There’s no doubt that more money is available due to the Fed’s flood of money to the Economy.

The US GDP slowed to 2.0%, which is less than the 2.7% forecasted. Slowing growth in the economy may new market tagline.


Chart Review:
Russell 2000
The Russell tested my reference level of 2371.6 and retreated. The Russell remains above the 50 SMA. The last bar of the week was a Doji precisely at the high and close of Thursday. Still a sideways market, a strong dollar bodes well for the smaller US-based companies. In the GDP report, they cited an increase in imports and a decrease in exports. Could this be affecting the Russell 2000?

S&P 500
Extreme runup continued from last week. The S&P 500 remained far above its 50 sma to make another all-time high. I included the weekly to give a better picture of the strength of the trend. As you can see, prices are above the averages with only shallow pullbacks. The deepest pullback since the Pandemic has been in September.

Daily

Weekly

Dow Jones
The dow made a new all-time high and dropped back to my reference level of 35,513.38. A rebound occurred at the end of the week. I still think the bull trend in the Dow is still in tact.

Daily

Weekly

Nasdaq:
The Nasdaq made a strong rebound through my reference level of 15396.71. At the end of the week, a new all-time high capped off a continued uptrend through the reference level. I included some trendlines or waves to the weekly, just some practice for me.

Daily

Weekly

The yields on the 10 and 30-year bonds gapped down while the five-year yields remained near their highs. The market themes revolve around supply chain shortages, inflation, the Fed’s tapering, and worker shortages.

I think the uptrend will continue as long as consumers can spend without feeling inflation too heavily. Services spending outpaced spending on consumer goods.


Would you rather?

As you may know, I placed a debit call bull spread last week on GEO. I brought the 9 call and sold the 11 call for 0.33 cents. An option is a standardized contract equal to 100 shares of stock.

So in total, I had 33 dollars at stake. This is a time of learning for me, so I am determined to keep my trading size low. While watching a trading instructional video, I asked myself whether you would cut your losses to a manageable amount or place faith in the stock’s performance in the future?

On Friday, I watched GEO recover the loss on the pullback and trend back towards the $8.31 reference level. Honestly, I felt like a fool for closing the position with a month left in the options’ life. At $7.68, I closed the GEO option position, which was the low of the pullback.

My initial thought was to take the loss before it gets worse.  I should have relied more on the technical story. Sad to say, I did not refer to a higher timeframe. I should have because the trend up was still intact.

The combined theta of the position was $0.01 on most days, meaning I was losing a cent each day the position remained open. The gamma remained around the 25 levels while the delta decreased from 33 to 19. The position was falling further out of the money as the days progressed to expiration.

I like to trade options using the technical and greek stories to form a complete picture. In actuality, GEO could hit the $8.31 level and fall.

So with this experience, I want to work on a percentage stop for each trade. For example, a 20% loss maximum for each options trade would be ideal since my trades are small. GEO would have to make a large move upwards to make the spread profitable.

My opinion is that the stock doesn’t have enough left but with earnings coming up this week, I could be wrong. GEO met earnings estimates last quarter.

Trading Journal below:


Cash-flow Review:

Yikes, is the first word that comes to my mind. It was a rough week, and I noticed that most of my expenses are bills, not discretionary spending. I’m still paying down my credit accounts at a moderate pace.

I may have to scale down to only the essential bills. The beginning of the month is usually when my cash flow becomes strained. I usually do fairly well towards the end of the month. Any surprise expense could pose a problem which means I’m living paycheck to paycheck. I keep going through expenses, and almost every line garners the response of “I can’t delete that expense because that’s a necessity.”

Now I have to ask myself, “Do I really need this service or product?”

Grade: D

Reason: Mismanaging my cash flow.

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