Happy New Year 2024!

Tom Gentile

Posted in
Newsletter

By: Tom Gentile
January 10th, 2024

6 mins read

Originally published via our newsletter previously. Subscribe for early access!

Image 9

Happy New Year! Here’s to a great year of options trading for 2024!

Time to get back to trading. Time to focus on and get in to the mindset of being a successful options trader.

Aside from improving upon the techniques learned it is also a time to expand upon your knowledge and learn new means to achieving / earning profits in options trading.

That is what I and my team will be focused on this year – helping you accomplish a better skill set of options trading through our education and with the use of our software.


Market in Focus: SPDR S&P 500 ETF Trust (SPY)

SPDR S&P 500 ETF
SPDR S&P 500 ETF

Have you heard of the January Effect?

Over the 30 years since the SPY came in to existence (1993) there have been 17 January months where SPY showed a gain. The other 13 showed a loss for SPY. That equates to a win rate for the month of  57% for a gain and a 43% loss rate. That basically means to me a breakeven chance of SPY going higher or lower. No significant advantage for the markets going higher because of the January Effect.

From 2009 to January 2023, a deemed strong time for the markets, the month of January for SPY was 7 times a gain/winner and 7 times a loss/loser.

The way I see it, an option trading strategy to consider for SPY may be a Straddle.

From the Desk of a CMT – Great Things Coming

I unplugged from many things over the last couple of weeks to put the chaos of a move behind me as much as possible. Turns out thirty years in one place makes that a little tough. Anyway, I finally got a chance to check out what Tom has been working on and am blown away by the additional tools we can access in the year ahead. If you’re an annual subscriber, please look for updates from HUBB and/or support@tomgentile.com. 

2024 is upon us and it is the perfect opportunity for this to be a breakthrough year for you. What will it take? Here are a few key areas to maintain discipline so you can consistently improve and manage changing market conditions:

  1. Money management rules: don’t allocate too much capital to a single trade or correlated trades
  2. Risk management rules: know your exit rules before you enter a position
  3. Take profits: don’t miss base hits looking for a home run 

The articles from 2023 had a more consistent money management and risk management rhythm, so 2024 will bring more attention to profit taking. It will also highlight tools to help you in all three areas, and quite a few of them are getting expanded or upgrades. You may want to add, “Keep learning” as item 4 for your list. 

Emerging Bullish Momentum

Let’s start with Tom’s Option Tools to run a MACD scan to view asset classes that may be exhibiting bullish momentum (Stocks > Stock Rankers > MACD). The saved list of Asset Classes probably needs some updating, but for now includes the following:

TLT SPY DIA XAU GLD SLV USO IWM TIP DBC DBA EEM QQQ AGG LQD HYG SHY EMB IEF IEI IYR GSG REZ IWR IYT DVY COPX

Here’s the settings for the scan run after the close on 1/2/2024:

Figure 1: MACD Bullish Cross for Asset Classes List on 1/2/2024
Figure 1: MACD Bullish Cross for Asset Classes List on 1/2/2024

The scan produced five ETFs to review:

Figure 2: MACD Scan Results (1/2/2024)
Figure 2: MACD Scan Results (1/2/2024)

Changing it up today, figure 3 displays a daily bar chart from HUBB for GLD, the gold SPDR ETF. The MACD indicator is included along with highlights for bullish periods. Instead of a moving average, the Raff Regression Channel was constructed using a weekly chart with 10/14/2022 as the Start Date and 10/6/2023 for the End Date (vertical line to highlight end date). This reflects a weekly low to low which will then appear differently on the daily chart. With a longer-term trend underway, the weekly chart 

The channel was extended to the right so we can assess price action at the middle linear regression line or ‘extreme’ (upper line, lower line), as dictated by previous price action.

Figure 3: GLD Daily Bar Chart with Raff Regression and MACD
Figure 3: GLD Daily Bar Chart with Raff Regression and MACD

Although GLD experienced weakness in the middle part of 2023, it’s had a sustained bullish move since early October with three different bullish MACD highlights.

Figure 4: Regression Line on 1/9/2024 (189.44)
Figure 4: Regression Line on 1/9/2024 (189.44)

The crosshair is slightly off with the screenshot tool, but the middle channel line is expected to be at 190.266 on 1/3/2024. Is this a prediction? No, definitely not. The channel lines can serve as areas of support or resistance, but “expect” is a statistical concept you can connect the idea, “on average,” for the price level.

Right now, MACD is displaying a bit of a divergence over these last three bullish momentum moves (MACD peaks have lower highs while price has higher highs), so let’s monitor MACD and volume over the next week to see how price behaves near this center line.

Given the period of time used to construct the Raff Regression Channel and the long-term uptrend displayed in figure 3, we have time. How will you prepare for a potential bullish entry?

  • What tools might you add to the analysis without duplicating the unbounded momentum tool already in use?
  • What option tools will you explore to map out a strategy?
  • How does bullish GLD fit in your existing trade portfolio (do you already have $ allocated to a similar/correlated ETF)?
  • What is your max allocation for this asset?
  • What is your max risk for this asset class and how do you achieve that?

Without a concrete strategy in front of you it may be difficult to answer the last question, but you do want an answer to it before you enter a position.

Here are a couple of more things to think about:

  • If momentum and volume suggest support will hold at the middle regression line, how many days will you require support to hold, a single daily close? Two closes? 
  • If you risk an early entry, how many daily closes below the regression line might you use for your exit?

A nearby exit for a loss can be a useful risk management tool, but it can also create whipsaws and/or make it difficult to reverse course once a sustained move in your expected trend is underway. How do you personally best manage that?

The timing for the articles has made me queue up ideas at times rather than offer up a case study, but since you need to trade to your plan, I do hope there’s good value for you to step through case studies thinking about money management and risk management.

To wrap this one up, how do you set an upside target when the ETF your assessing is making all time or recent highs? Hopefully, we have the opportunity to map that out next week. 

Happy New Year!

Regards,
Clare White, CMT


Happy New Year to you as well, Clare, and thank you!

Tom Gentile
C1P: Chief 1-Percenter


Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.

Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.

This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.

You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any investment decision made or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.

Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.

Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.

A full disclaimer can be found here:  http://www.tomgentile.com/legal_disclaimers.html.

Sign Up Now for Free Education!