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Your Jump on the Week – Market Volatility

by | Mar 23, 2019 | Bishop's Corner

Stocks had their worst day sell-off since January 3, as all major indices declined on Friday.  A combination of catalysts including:

  • the Fed’s growth projection of the U.S economy has worsened.
  • renewed worries of a global economic slowdown.
  • the 3-month/10-year yield curve inverted for the first time since 2007.

That said, I’m closely watching the Fed’s actions, reading up on economic reports, and paying attention to changes in market volatility. It gives me the best perspective on sentiment… and from there… I use my money pattern to help find select stocks and ETFs to trade.

My weapon of choice is options, and if you’d like to know more about my strategy, make sure to check out my upcoming interview with FOX’s Trish Regan, this Tuesday, click here to sign up.

That said, I did manage to book some winners during the week like these ROKU calls:

roku pnl, weekly money multiplier

(My money pattern works in all market conditions if you’d like to learn more about it, make sure to catch my upcoming interview this Tuesday with FOX Business host, Trish Regan.)

But you know what?

I’m not ready to commit to either side (bullish or bearish)… and because of that… my position sizing has gotten smaller. You see, it’s really easy to get overly excited when the market starts to sell off… however, experience has taught me to be patient and wait for further confirmation.

Jump on the Week – Market Volatility

On Friday, we got a taste of volatility, The S&P 500, Nasdaq 100, the Russell 2000, and Dow Jones Industrial Average closed down 1.90%, 2.50%, 3.62%, and 1.77%, respectively. Now, there’s a lot going on in the markets, and risk-off sentiment may come into play soon.

Last week, the Federal Open Market Committee (FOMC) noted it would remain patient… nothing new there. However, this time, it might be different. You see, the FOMC noted that Brexit and the U.S. China – Trade talks pose some risk on the FOMC’s outlook. Moreover, the Fed plans to stop its quantitative tightening policy at the end of September.

Treasury Yield Curve on the Radar

Now, the Fed has been reducing its portfolio holdings previously – indicating the U.S. economy was showing signs of strength. However, with the Fed concluding this program within the coming months… it makes traders think the economy isn’t as strong as the Fed says it is.

Well, how can this help with our trading?

Bond exchange-traded funds (ETFs) and volatility trades come into mind.

Now, we’ve been watching the U.S. Treasury yield curve closely.

Here’s a look at the 10-Year Treasury and 2-Year Treasury Yield Curve. This chart shows the difference between the 10-Year Treasury yield and 2-Year Treasury yield (interest rates).

  yield curve, treasury

What’s this chart tell us?

Well, if this difference becomes negative… it could get ugly for the market. You see, the last time this happened was in 2007, during the global financial crisis. That said, traders use this tool as a signal for a potential recession. So we’ll be monitoring this and the market closely.

This actually benefits bond ETFs. You see, when interest rates fall, bond prices rise… and when interest rates rise, bond prices fall. The reason this happens is due to the fact that traders will buy bonds to lock in a higher interest rate if there’s a potential for lower interest rates.

Trade Ideas and What I’m Watching

We actually saw this price action in the iShares 20+ Year Treasury Bond ETF (TLT). This was something I missed out on but mentioned to Weekly Money Multiplier clients – the day of the FOMC announcement.

You see, the market was already pricing in no rate hikes… but the FOMC said something different this time… it noted that there would be no rate hikes this year. Consequently, this sent TLT soaring.

If you look at the hourly chart above, the blue line (13-hourly simple moving average (SMA)) crossed above the red line (30-hourly SMA)… and we were already expecting the FOMC to skip out on a rate hike this time… that told us TLT could run higher. Now, the reason I wasn’t able to get into this trade: I couldn’t get the right price on the contracts I wanted… that happens in the markets, but you just have to move on.

What did I do when I missed this trade?

I found another options trade in VXXB (an exchange-traded noted (ETN) tracking the short-term volatility of the S&P 500 Index).

Again, we saw the blue line cross above the red line… I have a small position, relative to my account size, in VXXB calls. It’s nothing to get too excited about yet, but volatility could pick up from here, especially with the looming U.K. departure from the European Union (EU) set for Friday, March 29, 2019, as well as global economic growth concerns.

Right now, I think it’s better to wait for signals to clearly buy or sell something.

For example, another trade I’m watching is Amazon.com (AMZN).

Notice the blue and red lines above? Well, they shot straight to the moon and haven’t crossed for weeks. This is an ideal setup for me… however, I don’t know where the top in AMZN is… but once the blue line crosses below the red line, I’ll be confident to buy put options in AMZN.

There are so many setups like this in the market… but remaining patient is key. If you get in early, the options decay… and you end up missing on the reversals. It’s better to wait for confirmation.

That said, I’m waiting for my money to flash sells in some large-cap tech stocks… and I’m close to placing some bets against the market.

Now, let’s move on to the economic and earnings calendar. We’ve got a light earnings calendar this week before earnings season kicks off in the coming weeks.

Earnings Calendar and Economic Calendar

Monday March 25, 2019

Economic Calendar

  • 1:00 AM EST                   Fed Evans speaks in Hong Kong
  • 6:00 AM EST                   Fed’s Harker speaks in London on Economic Outlook
  • 8:30 AM EST                   Chicago Fed Nat Activity Index for February
  • 10:30 AM EST                 Dallas Fed Manufacturing Activity for March

Earnings Calendar

Earnings After Close
  • Red Hat Inc (RHT) implying 1.07% move. Note: RHT is being acquired by IBM in an all cash deal for $190 per share.

Tuesday March 26, 2019

Economic Calendar

  • 6:30 AM EST                   Fed’s Evans takes part in moderated Q&A in Hong Kong
  • 7:45 AM EST                   ICSC Weekly Retail Sales
  • 8:00 AM EST                   Fed’s Harker speaks in Frankfurt on Economic Outlook
  • 8:30 AM EST                   Housing Starts and Building Permits
  • 8:55 AM EST                   Johnson/Redbook Weekly Sales
  • 9:00 AM EST                   FHFA Housing Price Index
  • 10:00 AM EST                 Richmond Fed Manufacturing
  • 10:00 AM EST                 Consumer Confidence
  • 4:30 PM EST                   API Weekly Inventory Data

Earnings Calendar

Earnings Before Open
  • Carnival Corp. (CCL) implying 5.15% move, historical average move 5.58%.
  • Cronos Group (CRON) implying 10.71% move.
  • FactSet Research Systems (FDS) implying 5.36% move (monthly contract expiring in April). Historical average move 5.92%.
  • McCormick & Company (MKC) implying 5.79% move (monthly contract expiring in April). Historical average move 6.59%.
  • IHS Market (INFO) implying 4.72% move (monthly contract expiring in April). Historical average move 3.87%.
  • Neogen Corp. (NEOG) implying 9.82% move (monthly contract expiring in April). Historical average move 7.47%.
Earnings After Close
  • KB Home (KBH) implying 9.32% move (monthly contract expiring in April). Historical average move 7.7%.

Wednesday March 27, 2019  

Economic Calendar

  • 7:00 AM EST                   MBA Mortgage Applications Data
  • 8:30 AM EST                   Trade Balance
  • 10:00 AM EST                 Current Account Balance
  • 10:30 AM EST                 Weekly DOE Inventory Data
  • 5:30 PM EST                   Fed’s George speaks to Money Marketeers of New York

Earnings Calendar

Earnings Before Open
  • At Home Group (HOME) implying 13.37% move (monthly contract expiring in April), historical average move 16.25%.
  • Lennar Corp. (LEN) implying 8.18% move (monthly contract expiring in April). Historical average move 6.55%.
  • Paychex Inc (PAYX) implying 4.09% move (monthly contract expiring in April). Historical average move 3.75%.
  • Unifirst Corp. implying 8.01% move (monthly contract expiring in April), historical average move 6.6%.
Earnings After Close
  • Five Below (FIVE) implying 8.89% move. Historical average move 10.43%.
  • H.B. Fuller Company (FUL) implying 6.48% move (monthly contract expiring in April). Historical average move 5.71%.
  • PVH Corp. (PVH) implying 7.73% move (monthly contract expiring in April). Historical average move 6.98%.
  • Synnex Corp. (SNX) implying 10.26% move (monthly contract expiring in April). Historical average move 8.73%.
  • Lululemon Athletica (LULU) implying 10.38% move. Historical average move 14.79%.

Thursday March 28, 2019

Economic Calendar

  • 7:15 AM EST                   Fed’s Quarles speaks at ECB Conference
  • 8:30 AM EST                   GDP Annualized and GDP Price Index
  • 8:30 AM EST                   Personal Consumption
  • 8:30 AM EST                   Core PCE
  • 8:30 AM EST                   Weekly Jobless Claims
  • 8:30 AM EST                   Continuing Claims
  • 9:30 AM EST                   Fed’s Clarida speaks at Bank of France conference
  • 9:45 AM EST                   Bloomberg Consumer Comfort Index
  • 10:00 AM EST                 Pending Home Sales
  • 10:30 AM EST                 Weekly EIA Natural Gas Inventory Data
  • 5:20 PM EST                   Fed’s Bullard speaks in Wisconsin

Earnings Calendar

Earnings Before Open
  • Accenture (ACN) implying 3.99% move. Historical average move 5.35%.
Earnings After Close
  • RH (RH) implying 11.73% move. Historical average move 24.85%.
  • Science Application International (SAIC) implying 9.06% move (monthly contract expiring in April). Historical average move 13.23%.

Friday March 29, 2019

Economic Calendar

8:30 AM EST                   Personal Income, Personal Spending

8:30 AM EST                   PCE Deflator, PCE Core Data

9:45 AM EST                   Chicago PMI

10:00 AM EST                 New Home Sales

10:00 AM EST                 University of Michigan Confidence

12:45 PM EST                 Fed Quarles speaks in New York

Earnings Calendar

Earnings Before Open
  • BlackBerry Limited (BB) implying 8.65% move
  • CarMax Inc. (KMX) implying 6.71% move. Historical average move 7.13%.

My next update will come early in the week… so make sure to be on the lookout for that. Also, if you haven’t signed up for Tuesday’s event, you can do here:

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