Tom’s Weekly Newsletter December 28, 2022

Tom Gentile

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By: Tom Gentile
December 28th, 2022

6 mins read

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

Happy Holidays & Happy New Year!
Happy Holidays & Happy New Year!

The reason for the holiday sentiment is because this will be the last Tom’s Weekly Newsletter for 2022.

My self and my team of instructor educators, programming geniuses and my support team is taking / getting a well-deserved break the week between Christmas and New Years’

I would like to personally wish every one of you a blessed holiday season and thank you all for your loyalty to me, my company, and the education we provide.

We can’t wait to build on this relationship with you and bring even more great education and analytic tools to you in 2023!

Tom Gentile
C1P: Chief 1-Percenter

Corners of the Market

SPY – SPDR S&P 500 

TLT – iShares 20+ Year Treasury Bond ETF

The Darknet S signal doesn’t mean sell short, but if the run up is over and it retraces, here is a fib view of the retracement levels for TLT.

UUP – Invesco DB US Dollar Index Bullish Fund

The double bottom support level is now broken.

Not only has it been broken, but it is also broken with a close below support on a closing basis two consecutive days.

There is a possible support becomes resistance scenario to follow.

Where there tends to be an inverse trading relationship between UUP and SPY (US Dollar and Equities) the situation looks like the two may both trade down in a correlated fashion.

If equities get a bit more of a bounce and trade higher it would not be surprising to see UUP trade even lower.

How much lower?  One can draw in some trend channel lines and anticipate UUP trading down to the descending support line of the channel.

USO – United States Oil Fund, LP

68 is a price level that right now has a chance of becoming a new resistance where it once was a level of support.

We see that USO went lower and double bottomed 64 (a little below, a little above).

This bounce in price brought USO up to 68 on a closing basis today and if it closes above this price its possible a further move higher to 72 is possible.

We are not seeing a catalyst for this bounce higher nor are we seeing a particular story that would drop prices significantly either.

You know I am a pattern trader and a ‘seasonal’ pattern that I like to trade and have educated many on for a number of years now is the mid-Feb to mid-July bullish tendency I see in Energy and Oil.

A report will be written about this pattern as we get closer to the start time of that pattern.  For now, we see if USO can break above resistance or roll over.

GLD – SPDR Gold Shares

We finally see a clear example of what an inverse trading relationship between securities looks like.

Look at the chart on SPY (equities) and the chart on GLD (GLD).

When equities trade lower, gold is at times considered a safe haven and deemed a more prudent choice over stocks.

We see SPY rolling over and GLD is cranking higher.

GLD broke above 168, fell under it and is now closing above that price resistance two consecutive days.

Should this price level be sustained, and we see equities stay bearish the prospects for GLD higher is in place.

From the Desk of a CMT – NVDA Case Study

With the year-end in site, a Money Holiday case study was queued up for NVDA using a 10-year lookback and bracketed results using 15 days before the holiday to 20 days after.

Performance for 7, 8, and 9 days before and an exit one day after Christmas Day yields average returns of 4.28%, 4.45%, and 4.54%, respectively.

Figure 1 provides the scan results when setting the bracketed period to 10 days before and 2 days after, so we easily view similar holding periods with Accuracy.

Figure 1: Money Holidays for Christmas Seasonality, NVDA
Figure 1: Money Holidays for Christmas Seasonality, NVDA

Focusing on holding periods with accuracy at 77.78% (7 of 9 years), the holding periods ranged from 6 to 11 days and percent gains from 2.10% to 4.54%.

As mentioned, time = risk for a position, so an 8-day holding period was referenced last article.

The left side of Figure 2 provides annual data for seven days before (Thu Dec 15th) and one day after Christmas Day (Dec 27th) this year. Price data for 2019 is shown on the right side of Figure 2.

Figure 2: 9-Year Performance of Seasonal Trade for NVDA (Christmas Holiday)
Figure 2: 9-Year Performance of Seasonal Trade for NVDA (Christmas Holiday)

Since this case study has a timed entry and exit, we won’t be viewing the stock chart, but the implied volatility (IV) chart is still important to view.

This will help determine whether we go with a plain call (low IV), a bull call spread (higher IV), or a bull put spread (high IV).

Figures 3 & 4 provide IV charts for 7-30 day at the money (ATM) IV- and 30-60-day ATM IV, respectively. In each case IV is relatively low with a one-year lookback. 

Given the tendency for IV to have downward drift, a bull call spread was selected for a Smart Search scan.

You navigate to this tool as follows: Searchers à Multi-Strategies à Smart Search.

The Bullish Bull Call Spread was selected, and Figure 5 provides a screenshot of spreads with 36 days to expiration.

Figure 3: 7-30 day ATM IV for NVDA on 12/15/2022
Figure 3: 7-30 day ATM IV for NVDA on 12/15/2022
Figure 4: 30-60 day ATM IV for NVDA on 12/15/2022
Figure 4: 30-60 day ATM IV for NVDA on 12/15/2022
Figure 5: NVDA Bull Call Spread Scan Results, Jan 20, 2023, Expiration
Figure 5: NVDA Bull Call Spread Scan Results, Jan 20, 2023, Expiration

The Jan 20 185-180 Bull Call Spread was selected. Given a max risk of $500 for case studies and a spread max risk of $158, the case study was sized at 3 contracts ($474).

However, keep in mind this is a timed exit not a price exit. Figure 6 provides the case study detail and risk graph for the position.

The rule for an exit is simply close out both legs on Tuesday, December 27th.

Figure 6: Case Study Detail, NVDA Jan 20 185-180 Bull Call Spread, December 15, 2022
Figure 6: Case Study Detail, NVDA Jan 20 185-180 Bull Call Spread, December 15, 2022

Next article we’ll close out this case study and take a look at a potential symmetrical triangle forming on Costco (COST).

Symmetrical triangles can be continuation or reversal patterns so we’ll identify tools that can be used to help us weigh the bullish or bearish case for the stock.

If you have an opportunity before next week, take a look at a weekly line chart for the stock to help you draw the pattern boundaries.

What a great time of year with so many holidays celebrated together. I hope you can spend yours enjoying friends and family.

Regards, Clare White, CMT

Thanks, and Happy Holidays to you, Clare!

Tom Gentile
C1P: Chief 1-Percenter


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