Have you ever found yourself second-guessing your trades after a red week in the market? It's a common problem traders face. The market takes a dip suddenly everyone starts to question their strategies. This uncertainty can lead to quick emotional decisions, missed opportunities, and sometimes even losses.
I'm here for you friends, this blog is packed with actionable ideas and insight into what I'm thinking and why I'm doing what I'm doing. I study all this and subscribe to lots of paid tools so you don't have to. This blog has bold headings so you can skip to what interests you if the length is too intimidating... (I feel like there is a that's what she said joke here, but lets move on).
Red Weeks in the Stock Market
Red weeks in the stock market aren’t fun, but they are normal and healthy. Last week, I mentioned that QQQ was outperforming the S&P500 for 2024. After this week, do you see how the market corrected a little? QQQ is down 4%, SPY is down 2%. Year-to-date, there’s now just a 1/2 percent difference between the two.
I don't put too much stock into seasonality, but here's an interesting graphic: in the last 16 years, July has been bullish for tech, specifically QQQ.
Are Interest Rate Cuts Coming? What's Your Plan?
Do you have a plan for your cash once rates finally start coming down? With SGOV paying 5%, cash has not been trash. The real question you should have already asked is: what’s next? Even if you don’t have cash on hand, ask yourself what people in fixed income are about to do.
There’s a ‘rule’ about subtracting your age from 100 to determine how much of your portfolio should be in stocks vs. bonds. So a 40-year-old would have 60% in stocks. This rule is kinda dumb; anyone under 40 shouldn't have significant bond exposure unless it’s a short-term play. You know I believe equities are a powerful tool for building wealth.
With rate cuts imminent, most people will not leave their cash in under-yielding products. Fixed income investors will need to redeploy their cash from liquid products to ones offering higher yields regardless of interest rates.
What Are Some of the Options?
Locking in a guaranteed yield through 10-year bonds and municipal bonds seems like an obvious choice. In terms of equities, consider MLPs and dividend stocks.
Here’s how I think about stocks with upcoming rate cuts: If the labor market and growth remain steady and inflation continues to recede, the Fed might decide higher rates are no longer necessary. That’s the best case for equities. But if the Fed is cutting rates out of concern that the economy might be stalling, a bear market or at least a correction may be more likely.
I’m looking for high-quality stocks that are well-positioned to continue paying off their debt. Less growth and more value. Uncertainty is a guarantee, so it’s not the time to be afraid; it’s the time to make a plan.
Dividends: Upcoming Ex-Dividend Dates
Each week, I’ll discuss some dividend stocks. Dividends have been a key source of income for me through the years. These are the ex-dividends for next week (I omitted Monday's stocks since we needed to set them up Friday).
LOW is the only dividend aristocrat. The chart is interesting—do you see the double bottom on the daily?
If you don't mind owning Lowe’s long-term, it's an obvious double bottom on the weekly chart too (as shown below). I've always liked shopping at Home Depot so my bias to trading HD is real.
How can you double the dividend? If you can afford 100 shares, you could buy the shares and sell a call for next week. Be aware you can lose more than both the call and the dividend in the short term, so be willing to own this for a while. Please have a stop if you trade this, or have a really long time horizon.
PFE has a nice dividend yield, but earnings are really soon after the ex-dividend date. It’s also had quite a run-up into earnings, up almost 20% from its last earnings report.
I actually bought some calls right off when it broke through the weekly 200 (the red line). If you read my article on moving averages where I broke down PG you'll realize I'm giving you all my strategies :)
I won't be trading PFE for that dividend as I don't think of PFE as a growth stock and 20% is a lot, it could keep running. Just without me.
Dividend Trade Ideas:
I started pyramids on three dividend stocks this week. As I explained in the opening, I think dividend stocks in quality 'boring' companies will be profitable as people move to value stocks with interest rates coming down!
You shouldn't just blindly copy me, but here are my levels on T. did you read my blog on pyramids?
I also like VZ (I’m already in this stock); this looks nice. Don't own both unless you have a large portfolio, as these are the same industry. Choose one!
I started a position in KO; I’m going with the standard 10/20/30/40% buys as shown on the weekly chart below.
I also added a position in ET (which is an MLP). This yields a nice 7.73%. Be aware, if you buy this stock, you are considered a partner, which gives you additional tax benefits, but you get a K1 for tax purposes, which will show up in the mail in March. So don’t be in a rush to do your taxes. As you see below, this is a standard buy-the-dip. I don't expect all the levels to fill, and that's fine.
Schwab Put Sales (A trade taking some heat)
What good would this weekly blog/newsletter be if I only talked about winners? This week, I initiated a position in SCHW by selling post-earnings puts in the August monthly expiration at the 67.50 strike. I also legged into some puts at the 60 strike as well.
After I sold my puts, Schwab continued to go down and it looks really rough in the short term
My thought process here is: a year from now, do I expect Schwab to be higher than it is today? The answer for me is yes. I think of the assets they have under management. I understand their business, even if I’m not happy with the company’s recent login issues and I’ve had a couple of issues with their customer service after being bought out from TD Ameritrade.
So yes, I'm down on my positions; half my puts are in the money. I have set up an alert to roll my put if Schwab hits a new relative low. Try to ignore the P/L of the put and think about where you will be taking shares. We're going to roll these puts for as long as we can without taking shares.
Not all put sales are going to work immediately. We need to have a longer-term perspective. Remember, shares of a company are an asset! Sometimes our assets take a hit in the short term; it’s up to us to manage them effectively.
CRWD and MSFT Software Update Issue
On Friday morning, global technology infrastructure took a hit after CrowdStrike rolled out a software update that had a bug. In the pre-market, CRWD shares were down over 25%. The thing I like about the stock market is that when people are scared, I get excited. I know when most people are scared, they rush for safety. When people panic, they will do anything to make it stop without considering logic. In the stock market, that means you have an opportunity to benefit when other people are panicking.
When I sold my puts on CRWD, the markets were extremely wide. Instead of choosing a mid-price, I went super aggressive, looking for almost 2% instead of the 1% I normally would get for a strike. Think about it this way: if it doesn't fill at a super-aggressive premium, you can always adjust. For far too long, I was the noob who would settle for a fill at the mid-price or I was even on the other side, where I would just get out and panic. What I saw on Friday morning was how many Windows machines across the world are dependent on CrowdStrike for security. The company reacted quickly, rolled back the update, and communicated with the general public. That is why I initiated positions in both CRWD.
I also added a 1-1-2 in MSFT. You read my blog on these right? Oh you watched the video too? I knew I liked you :)
Weekly Charts
SPY is down on the week, but looking at the daily chart, we are back to levels not seen in 12 days. We have a break below the trend line, a little further to go before we hit the 50 EMA on the daily but since we're at support it's possible SPY can bounce here.
QQQ didn't quite hit the 10ema on the weekly. Last week I mentioned a breakout trade of last weeks DOJI. I sure hope you shorted QQQ with me? Purple box is an evening star reversal, but with the 10EMA there I want to see a close below before I setup a short to the 20EMA. Do you see how quick RSI dropped? Increasing volume this week as we get a rotation out of tech.
IWM's weekly candle looks ugly, a gravestone doji. There was some selling, but we still closed the week higher. Look at the volume coming in this week. Out of tech into small caps?
TLT hit the 100 and sold off... I told you last week. Did you sell any calls? I know some don't want to get called away, but my 95 covered calls expired worthless. I sold them based on that moving average.
GLD tried to break out this week and immediately sold off. Back in the range for now. If recession fears continue, look for strength in GLD and SLV as well.
SPYD still looking strong. This is not a suprise to me.
Upcoming Week:
GDP and jobless claims on Thursday. PCE on Friday. Are you seeing the pattern of these reports repeating every month? Are you starting to understand how this information helps us understand the bigger picture, but we’re not going to trade the initial report!
WOW we have a TON of earnings this week. You might be thinking "Justin, several of your dividend positions have earnings coming up like KO and T. But I also got called away on F and DVN this week. I'm just recycled some cash and I wouldn't mind a pullback on these names to get more shares.
That’s it for this week. My intention with this post is to make you think a little more about your trading plans, give you some ideas to make money, and keep your trading simple and passive. I’ll see you again next week. Much sooner if you join GKT’s Discord.
Trade Smart and Live Free Friends,
$Maxwell
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