Price Volatility in the Stock Market is Still with Us – Thanks Amazon

Tom Gentile

Posted in Education

By: Tom Gentile on April 29th, 2022 • 3 mins read

If one looks at the performance of the Dow Jones Industrial Average on a day like yesterday they would think Wow! The markets are  on fire and things are going really well!

But for those of us that have been paying attention to the markets and this is a large part of our livelihood you know better.

Days like yesterday are indicative of what happens in bearish market conditions. The markets can rally strong for a day and the get wiped out in subsequent days to the downside.

Until we see a series of higher highs in the charts things are still deemed soft.

It doesn’t mean we can’t find opportunity with a bullish pattern that has performed well over the past 10 year over the same relative period of trading days in those past years.

I highlighted UNH last week, and this week I am going to show you a way to participate in a sector rather than trying to pick that one particular stock in a sector. I call it trading the haystack and not the needle.

Health Care Select Sector SPDR Fund (XLV)
Health Care Select Sector SPDR Fund (XLV)
Image 1

Trading a Sector over Just One Stock like AMZN

A benefit to trading a sector like an Index or an ETF that tracks an index OR trading an ETF that is comprised of a percentage weighting of a batch of stocks in the same industry as oil, retail or what I have shown here – Health Care, is that you are participating in a grouping of stock versus just the one.

We are in earnings season and when a stock like Amazon.com, Inc. (AMZN) reports a less than stellar earnings and revenue number and the stock gets hit hard, that affects ones portfolio negatively and that stock percentage drop can be exceptionally large.

The sector it is in will likely get hit and drop as well, but on a percentage basis maybe not as much, because other stocks in that ETF may be faring well enough to offset that terrible number from the one stock.

It is true and parents you know, if you have more than one child when one gets the measles they all are at risk of getting the measles. I am not saying the ETF or index is safe. I am saying it may not take as much of a hit as the one stock.

Index funds and ETF’s are a way to be diversified and not be at risk of suffering too great a loss versus the stand-alone risk of a single stock outside of the index or ETF is.

App: Toms Option Tools

Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.

Other times I will have other charts may work to amplify my educational points. 

Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.

Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.