Tom’s Weekly Newsletter November 30th, 2022

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

Happy Thanksgiving from Toms Trading Room!

Thanksgiving is tomorrow and the markets will be closed.  The market will open for a half day Friday, but for us we will consider that another day we take off  since trading volume is going to likely be much lighter than normal.

With that lighter volume comes the chance of securities lacking the price volatility we would normally like to see.

Lack of volume and price volatility brings the challenge of our options trades overcoming Theta or Time Value decay.

We will hold off this week, wish you all a Happy Thanksgiving and be ready to get back to trading next week – rest up eat, well and be thankful!

Corners of the Market

SPY – SPDR S&P 500 

Soon.

That is the timeline given by the Fed as mentioned in the release of their minutes from their most recent meeting for when we will all see smaller rate hikes.

That release of info helped the markets regain their footing as they were sliding on the day prior to that release of minutes.

There is or has been expectations. It seems that the Fed was going to wind down their tightening policy and it looks like the minutes are confirming that.

390 was a prior resistance that SPY cleared 10-trading days ago.

Then 400 was the resistance level folks were paying attention to and that was cleared on a closing basis today.

We will see if 410 is the next level resistance or not.

TLT – iShares 20+ Year Treasury Bond ETF

UUP – Invesco DB US Dollar Index Bullish Fund

Let me re iterate what the chart image  annotation says…

The price support at 28.50 looks to be in jeopardy of trading lower.

This would be a break of support which would not be good for any US Dollar bulls.

Should it break that support it could go lower to a next level price support at 28.

We don’t use those price levels for options trades as those aren’t robust enough price moves to really see much profit in an options trade.

But we analyze those because the US Dollar tends to trade inverse to US equities and if the US Dollar (UUP) trades lower that could bring continued bullish price action in US equities (SPY).

USO – United States Oil Fund, LP

The last Weekly Newsletter showed USO had broken an ascending support.

The assessment was it could bring a drop down to 68 or even a bit further to 63.  You all can see 68 has been reached and now the thing to monitor is if Oil and Energy will find a catalyst to bring buyers and rally this thing higher or if a further decline to 63 is going to happen.

Right now, the last two trading days have seen a very narrow range of trade, which means the move for each day isn’t really backed up by much involvement of traders.

A couple of days ago you can see a bullish day, but that seems to be in large part to speculation OPEC+ could increase production (up to 500,000 bpd).  And now some more recent news is that the EU is considering proposing a price cap.

There is an OPEC+ meeting due to happen next week.

GLD – SPDR Gold Shares

After that triple bottom in price from September to early November it looks like it wouldn’t have been a  bad idea to become a Gold bug once again.

I have a 2022 Gold Report out now one can find at the website www.tomgentile.com and a strategy I educated folks on in that report or gave as a consideration that I might make soon is selling naked puts on GLD.

The though being it is depressed in price enough that accumulating it might be a good way to diversify ones capital.  But rather than just jump right in and start buying one could consider selling naked puts.

If the stock ramped higher one keeps the sold premium and can try and keep doing that until one time it doesn’t go higher, and one gets assigned some GLD.

In either case, the run on GLD would have likely been a profitable situation.

From the Desk of a CMT – Leaders and Laggers

There are some familiar ebbs and flows in the market that seem to have been missing for a few years.

The Fed put and easy money really did amplify the natural upward drift the stock market experiences.

Now it seems movements in semiconductors can lead tech which leads the broader market – a return to older trading patterns.

After some leading semiconductor weakness throughout 2022, this sector may be displaying some strength (or minimally a slowing of the decline). The question is, will sustained bullishness in the sector lead other portions of the market?

Leading and lagging sectors is one aspect of the market’s rhythm; there’s also seasonality which we can access using the Money Holidays tool for Christmas.

There’s plenty of time to work through this case study and track early signs of a potential Santa rally, so we’ll assess the behavior of semiconductors relative to tech and the broader market while seeking an opportunity in one of the sector stocks.

Last two images comprise Figure 1: Daily Chart for XSD with Fibonacci’s, 65-day & 130-day SMAs, and MACD (11/22/2022)

The 38.2% level provides some resistance for the bullish move in XSD.

It will be interesting to see if a pullback holds at either the 65-day or 130-day simple moving average (SMA) or the 50% retracement level.

All three have the potential to provide some support for the ETF … it may be asking a lot to have that coincide with a nice Money Holiday set-up, but Christmas is coming after all.

You can navigate to the Money Holidays tool via the Toms Tools icon.

You then a stock/ETF, the holiday, and market days before and/or after the holiday to obtain results.

The settings in Figure 2 allow for a 40-day window around the holiday, 20 days before and 20 days after.

The following results were returned after sorting by the Accuracy column, highest to lowest.

I did scroll down a few lines once sorted so the bottom one was visible (8 days before, 1 day after)

I do love the visuals displayed from this tool. Next up we see the performance of XSD over the last nine years (it’s a relatively newer ETF) and can then drill down further to see the daily movement for each year. You do this by clicking on one of the annual bars.

Next week we’ll simply note the XSD chart then quickly identify a semiconductor stock to apply the Money Holidays tool.

Note you can bracket the holiday by 30-days in either direction – this Friday is 21 market days before Christmas, so you can implement something now if it suits your style.

This is a heavily rules-based approach with clearly defined entries and exits – it’s simply based on time.

Although there are some nice gains for XSD in this particular view, the spread for XSD options is just too wide and would cut significantly into expected (= average) gains. We’ll find a stock with more liquid options to identify an opportunity.

After two Covid years, roaring inflation, and some turmoil about, I hope you can celebrate Thanksgiving in a peaceful, joyful place with friends and family.

I am so incredibly thankful for those around me, including Tom’s team with a special shout-out to Jay. The last 3 years have been pressure filled but carving out time here has been something I do for me. I am so, so grateful to have this positive experience on an on-going basis.

With some life things now in place, Thanksgiving will be even more meaningful and 2023 a year of possibilities. May it be for us all.

Regards,
Clare White, CMT

Let me say Clare – I speak for Jay, the team and myself when I say Thank You!  

We are so well taken care of by you with your education and we appreciate your contributions to helping every one’s learning of this incredible skill set.