By: Tom Gentile
on September 28th, 2022
Originally published via our newsletter previously. Subscribe for early access!
Fed Announcement Day!
Today the Federal Reserve Chairman, Jerome Powell, announced the Fed is raising interest rates by 3/4 of a point taking their benchmark interest rate, the federal funds rate, to a new range of 3.0% to 3.25%.
This is the highest it has been since early 2008. This is the third time in a row the Fed made a 0.75 percentage point move.
The concern wasn’t so much the amount the Fed was going to raise, but what more they see needs to be done. Is there signs of an improving economy or how much of a risk still is rising inflation and are we headed for a recession?
We will continue to listen to the commentary and read the follow up once Fed Chair Powell talks as we want to see what the markets do and where investors make their moves.
This will give us a better gauge going forward where we look to initiate new option trades.
— Tom Gentile
C1P: Chief 1-Percenter
Four Corners of the Market
SPY – SPDR S&P 500
It was possible the markets saw a short squeeze on the decision on interest rates, but the markets immediately sold off some more intra-day only to bounce higher and lower off the lows established off the move that came on the announcement.
Where this closes is still to be determined, but on the chart for the SPY above, we can see a support line highlighted in previous newsletters which is also the 61.8% fib retrace level was broken to the downside.
Unless the commentary the Fed chair gave was enough to bring buyers back in to the market enough to create a pivot low and at least bounce from here I could see things lower.
I have two horizontal lines drawn in to show possible targets lower, which is a consolidation level of about 372.
Should that not hold we may attack the June lows.
TLT – iShares 20+ Year Treasury Bond ETF
UUP – Invesco DB US Dollar Index Bullish Fund
Things are expensive for exporters. A strong or stronger dollar means U.S. goods become more expensive to foreigners. This hurts exporters.
This cuts in to the profit margins for exporters as well and that can’t help their earnings and revenue numbers.
This puts into question to a degree whether these companies will hit their projections or not.
We all know what happens if a company misses expectations. Even if they see things getting better in coming quarters the initial reaction to an earnings miss isn’t always well-received.
For those that are graduates of Mike’s Earnings Mastery or my Money Patterns Mastery have learned a straddle strategy or two or three to take advantage of stocks coming up on earnings.
In this sense, UUP doesn’t bother us that much from an options strategy perspective.
USO – United States Oil Fund, LP
A bullish island reversal pattern was highlighted last week, but it was stated if a bounce were to happen it didn’t looks like it would be that strong.
A chart of 90-100days showed a double bottom support at 68 and we lengthened the view to see if there was a previous test of this price area prior.
We can see over a 150-day view we pick up one other test back in March.
It still doesn’t look like support will hold, but if it does a possible bounce up the descending resistance line, (highlighted by the green dotted line in the chart image above), is possible.
A break of the horizontal support line could mean a future move down to a 64-price support level is possible.
The support price level last week was 70 and it hit that today, but so far has reverses and that is why our assessment of it not looking that strong was made.
GLD – SPDR Gold Shares
Keeping the same length view on GLD as shown on USO we can see a horizontal support (solid, green horizontal support line in the chart above).
It could be said a bounce higher makes a possible run to the dotted, green, descending resistance line is possible.
I wouldn’t say that as it looks like the horizontal support line GLD broke 5-trading days ago is being tested as new resistance.
Today there was a sell off on GLD, but it did reverse off its intra-day lows and ended up closing higher than its open creating a bullish reversal day and a hammer-type formation.
Some definitions you would read may use the term it closes significantly or well above its low.
That appears to be the case today and if it weren’t for the overhead resistance I would feel even better about a subsequent move higher.
Tools and Observations
One of the tools I have written about before is the 52-week Hi/Low Scan.
This is a scan that searches over as many optionable stocks as one wants to find those that are trading at or within a specified percentage of the stocks 52-wekk high price.
Those that are training at their 52-week high are deemed strong stocks; strong in the sense that even with a market that is bearish year-to-date are trading at their high for that period of time.
While other sectors and stocks in those sectors are rolling over and getting beat up for the year, these are not.
There could be any number of factors as to why these stocks are holding up and basically, outperforming other stocks, sectors, or the markets overall.
They could have great management . or maybe bringing on new management that has a proven track record with previous companies.
They could have sales outpacing expectations, which could lead to their earnings also outpacing expectations.
They could have new products or services coming out that people are excited for and the expectations of the sales of such will help their bottom-line profitability.
Maybe they are stocks in an industry considered recession-proof and investors believe the share price is at a valuation that won’t be affected because of a decline in share price, because the company will be able to weather those type conditions.
To find the 52-Week High/Low list log in to the tools, (which, if you are reading this newsletter you are already logged in).
Do the following sequence: Stocks > Stock Analysis > Hi/Low
You will get to this page:
On the above image it shows what selections we make – you can select whatever you want that’s available.
Number of weeks is 52
Wizard (which is another word for Scan) is ‘stocks with Latest Highest Close for Weeks Chosen
Searched Stocks: S&P 500 Optionable
Search Controls: Search
Here is an image of the first 10 listed on a search done today:
The stocks are listed in descending order from those at 100% on down.
From here you can look up the Double Finder search to look for options opportunities or any number of different options searching capabilities with the tools.
— Tom Gentile
C1P: Chief 1-Percenter
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