Technically Speaking: Trading the Trend | Pullbacks | 5-9-19


[MUSIC PLAYING] Hello, and welcome to
“Technically Speaking– Trading the Trend
Weeks to Months.” My name is James Boyd. Today’s date is May 9. We welcome you here today. Today’s topic is really
on short-term pullbacks on intermediate charts. So we will be looking at
some of these pullbacks that we’re seeing on
some of these charts and talk about them from
a bearish perspective, but also a potential
bullish setup as well. Great to be with you here today. Also, want to just ask you,
what questions are on your mind? You might have questions
about the pullback. You might have questions
on strategy selection. Just let me know what
your questions aer, and we’ll see if we can’t answer
those potentially as we go. So I just want to
recap what I just said. What are your questions? What are you thinking? Questions on strategy? Questions on protection? Questions on exiting protection? Questions on looking to maybe
do some sell side strategies? What’s going through your mind? What questions do you have? Let’s see if we can’t
answer some of those as we go with what we’re
going to discuss here today. Now just real quick,
remember that options are not suitable for all investors. There’s special risk
inherent to trading options may expose investors
to potentially rapid and substantial losses. Carefully read the
previously provided copy of the characteristics and risk,
all of standardized options. Now in order to demonstrate the
functionality of the platform, we will use actual symbols. And also, remember that
TD Ameritrade does not make recommendations or
determine suitability of any security or strategy. That is up to you to decide
what you want to invest in. And also, remember that
any investment decision you make in your
self-directed account is solely your responsibility. When we talk about the Greeks
here today– delta, gamma, theta, vega– know how they apply. Be very aware of what
the Theo price is and how volatility can jack
up the price of the option. If we haven’t seen that by
now, we might not ever see it. So just be very aware. I think you are. Now what are we going to
talk about here today? We’re going to take a quick look
at the indexes in the sectors. We’re going to take a
look at the volatility. Volatility is very
important in terms of, are we going to potentially
consider selling strategies or more buying strategies? We’re going to talk about that. Also, the volatility
rising clearly has something to do with the
short-term pullbacks or vice versa. Volatility doesn’t typically
tend to last forever, though. And we’re going
to talk about how that can seed a new potential
bounce opportunity, perhaps. Second, we’re going to talk
about the short term pullbacks and their intermediate trends. Got some examples we can look
at from a stock perspective or an option perspective. And then I’m going to
take about five minutes, and I’m really going to talk to
you about these two questions. Are you on track? What is your destination? Take five minutes. This has been something
that people have come up and asked me left
and right about. Where am I? Am I on track? And then second, what
is your destination? Five minutes or less
on that section, but I think this is
going to be riveting. You probably won’t be able to
sleep, or you’ll be so excited, you can’t stand it. You’re going to have to pinch
yourself to just calm down. Now four is we’re also going to
talk about management example considerations. I looked at today’s– I looked at our stock portfolio. We have four stocks in
our stock portfolio. The other ones
are all protected. So really, the pullback that
we’re seeing in the market really hasn’t done a whole lot
for our portfolio damage-wise. We don’t really have
that many stocks. The level we’ll talk to or
speak to today is intermediate. We’ll be using the TOS platform
here today by TD Ameritrade. And what I want you to be
able to do by the end of today is identify the
stocks in the pullback to a longer term moving average,
minimum a 30 moving average, or a horizontal support. And I want you to
practice applying the strategies of short
put verticals or short put strategies. So that’s what I want
you to focus on– looking for stocks that
have actually pulled back, consider a selling
strategy, and you could pick between one or the other. Very similar strategies, though. Now first off, let’s
take a look at the SPX. We said yesterday that
when the market actually closed, the candlestick on
the far right hand side– there’s not a candle that’s
called the Wimpy Candlestick. But that was very weak
yesterday at the close. We saw the price
action go up right to the 30-day moving average
right there on the right edge. And then pretty much, we
actually kind of folded like a cheap lawn chair
going into the close, just meaning it was up,
and then like a balloon, it just gave it back. Now you’re going to see that
the price action closed down below both moving averages. Now think about this. If the price closed below
both moving averages, who’s in control? Seller’s in control. When seller’s in control,
price tends to push down. When we’re down near
the support level, we want to see bullish
type of candlesticks. That was not a bullish
type of candlesticks. So coming into
today, what do you have to kind of
think, potentially? Maybe some more weakness. Now you take a look at this. We go forward one more day. This is a candlestick today. And if we look at the
type of candlestick, first thing you’ll notice is
it’s below our diagonal support level. If we look at what
type of candle this is, this is like a
hammer candle, and we talked about these
candles on Monday night– hammer candles, piercing
lines, bullish engulfing. These would be more
what we’re looking for to really see that
bullish investors are buying into the sell-off. Now for some investors, a hammer
candle might be the entry. We would probably like
to see more confirmation than that to be a little
bit more conservative, but it’s a start. Now these hammer candles can
come in near a horizontal level of support. And if we take a
look at this, we said yesterday that
the first support level– we tend to want
or hope that it’s going to hold the support level. I think sometimes it’s OK to
be a little bit more realistic and say, maybe that first
support level doesn’t hold. And we said yesterday, maybe
that final resting spot or maybe target
realistically, maybe it’s right down near the 2,800,
where we kind of really got above this old horizontal
resistance is maybe where we get a bounce point. Now as we come down
potentially to that area, we’re going to look and see
if maybe some stocks aren’t doing the exact same thing. S&P down about 4/10
of a percent, though. NASDAQ is actually sitting
here, down about half a percent. And you’re going to see that
if you said, hey, James, could we look at the
50-period moving average– this is not a bad question
that we might ask. And you’re going to
see that what I did is I just adjusted the chart
to a 50-period moving average. The red line was a 30. Now it’s 50, and so
what you’re going to see is when these
prices pull back, we might use like a 50-period
moving average or a 200 to get a gauge where
investors might come in at. We bring up the
S&P. The S&P is also sitting right on the
50-period moving average. Doesn’t mean that that’s
the ultimate ending spot, but again, some investors
like to buy on pullbacks. And now, if we bring
up the volatility just real quick, the
VIX, you’re going to see the volatility went
up to the level of 23. Now remember this. The higher that the
volatility goes, the better it is in terms
of price compression or dropping down
to support areas. So if we hold stocks,
it’s a negative. If we’re looking
to get into stocks, volatility rising is a positive. Quick example– real
estate in our area is very high right now. I would like a good
recession, because I would like the prices to come
down or there to be volatility to get the prices to drop. I can’t get a deal,
unless there’s kind of more volatility in
the economy to get a better price on the house. Does that make sense? So what’s– when
volatility goes up, it’s negative for the
short-term, typically, but it can be an opportunity
for a new potential entry. Hello, Barat and many others. Now what I’m going to do
is let’s take a quick look at the sectors. We said earlier yesterday
that the sectors that it would tend to lead in a pullback. And we said this before. It does not mean they’re
going to be positive. But if we look at this and
see what is leading right now, you’re going to
notice that if we take a look at what’s leading,
it’s still health care. We’re looking at this
one week right there. What we do see in this case
is there’s health care. There’s staples. Here’s utilities. These is– those three
are what we would expect would be at the high. What we are seeing
is really energy has held up OK, and so
has discretionaries. But really, financials,
technology, and basic materials have been taken
out behind the barn and maybe warped a little bit. Now not horribly, but they’re
down 2% to 3% on the week. So it’s not horrible. But this is not unusual
what we’re seeing here. So again, as prices
fall, as prices fall, investors tend to revert
back to that graph. We said, U for utilities,
V for staples, P– excuse me. U for utilities, V for
healthcare, P for staples, areas like T for technology, M
for financials, E for energy, and also, we would
actually include in there– missing one– technology,
financials– there it goes– materials. These are the ones
that are higher beta. And that’s what we’re seeing. So the graph that we
actually put up here before, it’s just happening in
front of our face now. On the left hand side is what
we call the expected return, and the B right
there, that’s beta. The higher out we are in
terms of beta, the greater the directional risk. If the market were
to go up, those could outperform the S&P.
If the market goes down, these areas can have
greater price fluctuation. And we’re seeing it right now. So this is not– we
talked about this picture. We’re seeing it now in
statistical returns. OK, great. Now let’s kind of talk
about examples of, James, what are some examples
of maybe some stocks? And one thing that I
like to actually do– and I did this earlier today–
is I went out and said, hey, are there some examples
of maybe some stocks? And I looked at the Dow 30. I looked at the NASDAQ 100. I looked at the S&P 100. And I said, well, we know that
if stocks are selling off, they would be in what we
call a number five condition or a number one condition. A number one is saying that
the stock is below both moving averages, the 10-day
moving average and the 30. And that’s what you’re
seeing a lot right now. That just means that
stocks are being sold. There’s more
sellers than buyers. And we see that. But if buying is
starting to come back, it would be in what
condition or what number? Well, it’d be number two. And number two is saying
the price is getting back above that 10-day
moving average, but maybe not yet above the 30. And if I look at
this, and if I go to number two, what
stocks in the S&P are doing that condition? Stocks like Chevron,
stocks like Fox. Now you’re going to notice that
there are also some stocks that are still showing that
they’re in the number three condition, which means they’re
above both moving averages. And number four, there
is really saying, hey, James, we’re above
both moving averages, but we could be up
near a resistance. So if you kind of look at
your overall portfolio, your portfolio tends to be
doing the best in condition number two, three, and four. When the prices drop down
below that 10-day moving average, condition
five, or the price is below both moving averages,
condition number one, your portfolio overall
tends to be pulling back with the market. Now one of the stocks
that actually came up that I’m going to
take a quick look at– and we talked about that
idea of selling strategies. Now you’re going
to see that this is a stock that is actually
above both moving averages. If we also take a look
at this, it does not have earnings upcoming. It kind of reminds me a
little bit when we talked about Mickey D’s yesterday. And if you take a look
at this, the price, we said, when the
market pulls back, it’s not a bad idea to
look for relative strength. How would I know if this
has relative strength? Number one, we said we could
visually look at the chart. This chart is doing
something different than what the market is doing. If you take a look
at this, it’s still above both moving averages. It has more of a slight
upward-trending support, maybe a horizontal
resistance right there, trying to poke its way
up through resistance. Now if you take a look at this,
what you’re going to notice is we really have a prior
high maybe somewhere right in the ballpark
of, let’s say, 349. I want you to also notice that
when we look at the volatility here, there’s been a little
pop on the volatility. The volatility that was
about 17, the volatility now is about 22. Well, why do we care? Well, the higher the volatility,
the bigger the premiums. The bigger the premiums,
the lower the break even. So it really increases
our likelihood of the stock being above
the break even point at expiration– still not 100%, but
higher probability. Now if we go into, let’s
say, Lockheed Martin and say, Lockheed Martin, do you
have any options, well, if we have– just look at,
let’s say, the monthly options, and we’ve said, look, we’re
going to try to sell a put. Let’s start here, selling a put. Now again, if you
think about this, when the volatility
is high, and I’m going to throw out a number that
gets told to me quite a bit. People say to me, James, when
the VIX is over 18, they– and I’m quoting what
people say to me– that VIX is high. Any time it gets
over 18, you might say, James, that tends
to be, let’s say, when the VIX is in a higher– in the upper end, so to say. Now I’m just
repeating what people have kind of observed to me. Now if we decide that I’m
going to sell the put, we know what that risk is. The risk is if I sell the
put, if the stock goes down, I have a pending
obligation to buy the stock at the strike price
from now until expiration. Now the other risk that
I have is I’m short vega. If volatility were
to expand, it’s going to increase
the value of the put. So direction, I’m bullish,
but I’m actually susceptible to, really, the volatility. Now if I come in and say
I’m going to sell that 330 right there, what
you’re going to see is I’m saying single
sell minus 1 and the 330. Now I want you to
think about this. The question was
asked to me by Sandy. How do you really know to
depict certain strategies? Well, when we’re talking
about doing selling put strategies or short put
vertical strategies, we’re trying to build
the inventory of that when the volatility is high. You go look at the VIX, and you
tell me what’s high for you. If you said it’s 18, great. If you said it’s 19, great. If you said it’s 20, fantastic. Take all those. We’re trying to actually
do probability type trades when the VIX is higher– bigger premiums,
lower break evens. If I now go in and say I’m
going to sell this for 610, I now have to understand
that I could be the buyer of the stock at $330. Now when we go back to
our overall portfolio, and we look at that short put
section, what you’re really going to see right here is
we only have four positions. We still have the Boeing. We still have the Nvidia. This is a pretty
light portfolio, and I’ll go so far to say
that we could really only have three short puts, because,
really, Facebook is really down to a whopping $0.22,
meaning it can’t go below zero. We could buy that back and
shut the position down. So we’d really only have
three positions left. If we’d like to actually
try to make income– income, not just
directional exposure, but try to get income from time
and volatility contraction, we might say, you know what? I’m going to be a little
bit more aggressive and try to sell some puts
here to build the inventory. Now, there’s two sides. Some investors like to
do short put verticals. They like to know that there’s
a built-in risk management. Second, there might
be some people with red hair and freckles, like
myself part Irish, like I am. And you say, hey, I’d like to
actually get a bigger premium. I don’t mind to own the
stock at the strike price, and you like to go
for a little bit more. Clearly, the short put
is more directional, and you have some additional
risk elements there. But if I say I’m going to
put that right in the short puts right– let’s go back and put
that right there– short put’s right there. Now what I’m going to do
is there’s the credit. There’s the commission. Now if I do that, this is
a probability-based trade. A probability-based
trade, in this case, is we’re kind of forecasting the
stock could stay up above 330. The delta is going to
get us approximately what the probability is. So if the delta was
33, it’s approximately saying it’s about a 33%
chance the stock will close one penny below the strike. So if we sold the 330,
and we got $6 of premium, we would need that stock
at expiration to be at 324 or higher to break even. So if it was at 327 at
expiration, that would be OK. Now, let me actually
address some questions here. So one of the
questions you had was, hey, regarding the
numbering, so now no one ever explained this to me. I just kind of
said, look, this is a way in which we could
manage our portfolio in terms of identifying where the
stocks are in relationship to the moving averages. I’ve stated this
before, but I kept this on the left hand side. And so this is really number–
so if you said, what is one, it’s right there. What is two or three
or four or five? And what you’re going to
notice is, in blue, those are those six letters. If you wanted to put
those on, you can’t. Now, so that was
question number one. Can I get those? I’m showing you those. The second question, I
think, came from Paul the other day regarding– it seems like a lot of stocks. When markets pull back,
you can kind of get– it would be a lot of work
to manage the positions. I would actually argue
that, because what you’re going to see is
when stocks go down, probably the bulk majority
of them are going down. So in other words, if you’re
protecting the positions, you’re doing a lot of
collars or protective puts, et cetera, or setting stops. In other words, you’re
doing a lot of the same. Then if those stocks
were pulling back, and then started to
break out of resistance, you might just be
doing more stock buying or more buying of
a call option, et cetera. So what’s interesting
is you’re kind of doing clumps of the same thing. So if I pull up 10 stocks,
eight out of 10 of those stocks, perhaps– maybe seven, maybe six,
but probably more or less– are probably doing
the same thing. So I don’t really look at it
as there’s so many things here. You’re going to see
that almost all of them, almost, are doing the same
thing, because they’re on the ocean of the market. So I got that question. Now let me go just real
quick to any other questions. Are there any other
questions that I missed? Let me know there. Now just real quick, I
want to hit this right now. If there’s any other
questions, let me know. But so one of the questions
that’s come up to me– and it’s irritated me. It’s irritated me, because I
think it’s a great question, but I think the people that are
asking the question never give a student or the
client really a way to answer what the question is. So if I ask you, are you
on track for retirement, and I say that comment,
I’m not really– I might give you
a good question, but I’m not really
allowing you to really know how to answer it. Does that make sense? I’m just trying to be fair. Now, one of the things you can
do– and I did this yesterday, and this is very important. So this is the segment called,
Where Am I, and, for example, what’s my destination? Now those are important. Yesterday, I just did
this for a little fun. If you pull up
any map, any map– it doesn’t matter what
map you use– online map. You’re looking to go somewhere. It’s going to ask
you, where are you, and what’s your destination? You need those two points. You do not answer
those questions, it doesn’t matter the
information I give you. It’s not going to be helpful
and relevant, because you don’t know where you
are, and you don’t know what your destination is. Now, just real quick,
you can actually get a calculator
for about 30 bucks. You could get an app
for free on your phone. It’s called The
Time Value of Money, or you could even say, look, I
don’t want to download an app. You could do an online financial
calculator for crying out loud. Number of different
ways to find it. Real quick, what I’ve done is
I’ve wrote down the information that we need. I’m going to give
you two situations. So when you look at a
financial calculator, they’re going to ask you, n– there’ll be a key
that says N. N is just saying the number of years. How many years? Easy. IY is really saying
more the percent return. All right, PV stands
for present value. In other words, how much do
I need now in the present? The PMT– probably
catch that one– payment, what would
your input be? In other words, how much
you’re going to set aside. And the other thing,
in this case, is FV. This is the future value,
or what we call the goal. In other words, what’s
our destination? I like to think about that
PV, the present value, as where should you be, or
where’s your starting point? So I have two quick situations. Let’s say in this case, where– let’s say that investor says,
James, I’m 45 years old, and I want to
actually look and see if I keep going at the path
I’m going on, where could I be? Now this is very important. So let’s say the
investor is 45 years old. Let’s say they plan
on working to 65. Now remember, what was N again? N was, well, the number of
years or the number of periods in which they were going
to work, from 45 to 65, about 20 years. If we said that
that investor thinks that, hey, they can, on
average, get 8% on average on their money, let’s
say that investor said, present value of their
portfolio is $150,000. And they plan to contribute and
get a match with their company, and each year, the
payment into their plan was going to be $20,000. OK. Now we’re saying if
we put those inputs in, what would the future
value be, the destination? Well, if we kept doing
what we’re doing, it would be about
1.6-ish million dollars. So this is saying,
take what I have now. Save money. Make some money on average. And then where does it put me? So in other words, I
know my starting point. That’s very important. Now let’s take the
opposite of this. If we say, OK, situation is I
know my goal, my future value, and I’m assuming 8% annually–
and this is the question I really want to get to– am I on track? Now the biggest thing is
a lot of people say to me, well, James, how do I really
know what my goals should be? What’s my destination? Well, I like to think
of this as start with the lowest minimal
acceptable threshold. In other words, if you
were going to retire, what is the lowest number
that you would accept? If you said to me, James,
I believe to retire. I need $1.5 million. Then that is going
to be the destination that we’re going to look at. So on a calculator, what
we would be doing is we’d be typing in N is
20, so we’d take 20, and then click N. Second, we
type in 8, then click on IY. That’s the interest rate. We’re going to actually
type in 20,000, and then click on Payment. All right. Now if we go
forward, you’re going to see that the future value– we need to put–
and this is very important you listen to this. We need to put it in the future
value, where it’s $1.5 million, put a minus in front
of that, and then click on that future value. And now what you’re going to see
is if we do that, it will say– if we say, compute that present
value, where I need to be now is to be on track
to hit that target, I would need to be
at 125,000 or better. So if my account
balance, hypothetically– I’m just throwing out a number. If my account balance said I
was at 108, I’m behind that path that I need to be on. Does that make sense? If my retirement balance
was 168,000, hypothetically, I’m ahead of where I need
to be, which is good. That’s a good problem to have. So I’ve looked at this from
A. I know where I’m starting. If I keep going,
where’s the destination? Or this is where I want to be. Where should I be now? Now I’m going to kind of
throw this one last thing out before we shift back. If you typed in to a map
service, starting point, I don’t know, and you
put in an ending point, I don’t know, where do you
think you’re going to go? I don’t know. The problem with
actually not being able to do that quick
math is you never really feel like
you’re making progress. Everyone that has
listened to me– and I’ve said there’s a
number of different ways. You can get a calculator. You could download an app. You could actually go online. You could talk to a
finance representative at TD Ameritrade. You need to actually find
out, are you on track, and if you knew five simple
keys on a calculator, you could figure out
where you should be– five simple keys. So the biggest,
actually, thing– I think this is very
important, because I think we want to make sure,
am I making the right steps? Am I on track? Where should I be? If you went up and asked
10 people, where are you? What’s your destination? You might bet that eight out
of those 10 people don’t know. That’s not a good answer. It’s not a good
answer, especially when our families are at stake. Our futures are at stake. It’s not a good answer. So we want to really make sure
we not only ask that question, but to give you the tools to
be able to answer it for who? You. Now let’s shift back here. We said one other thing
we want to do here is really talk about
some management examples. And I’m also going
to bring in here– so Michelle, Andy, Ricardo,
Paul, I want you to be able– so I’m going to
ask you to really– coming up next week,
are you on track? Do you know what
your destination is? And do you know, are you on
track where you should be now? You’ve got to know that. You have to. Now if we actually
go look at this, I’m going to look at
about one more example. I’m going to go back
to a stock, even like– I’m going to bring up a stock,
for example, like Microsoft. Now if we take a look at
a stock like Microsoft, or we could look at a
stock like Travelers– let’s take a look at this. So what you’re going see– I’m going to look at Travelers. What we’re going to
see is in stocks, if we take a look at this, you’re
going to see that stocks– and I know you know
this, but just you’re going to see that
stocks go up, and then they actually pull back. So we did it. Stocks run up. They pull back. They flatten off, and
what actually happens is they break the
diagonal slant. Stock runs up in the price. Stock actually pulls back,
and all of a sudden right there on 312, it breaks
the diagonal slant. Same thing here–
the stock runs up. The stock pulls back,
breaks the diagonal slant. Stock runs up, pulls back,
breaks the diagonal slant. Now we’re always thinking
when the stock runs up, the million dollar
question is, how do we know it’s going to break the slant? Again, now, we believed it
before, because we can see it. But is it going to do it now? Well, that’s kind
of what we talked about yesterday– drawing the
diagonal levels of resistance. We know that in an
intermediate trend, there’s shorter term
type of pullbacks. The skill set that I would
need to be able to do is, can you draw a diagonal
line of resistance? Now second is, could
we actually look to maybe do like a bullish
type of trade on the stock? Now let’s go take
a look at this. When we take a look at
the implied volatility, this stock is not
really that volatile. It has a low end of the
volatility of about 15 in the time frame
I’ve given you, and it also really has about
a current implied volatility of about 19. I’m choosing this
one on purpose. So the idea here
is, number one, is when stocks pull
back near maybe, perhaps, a 30-period moving
average, the biggest thing sometimes is
ambassadors say, look, as the stocks pull
back to maybe a 30 or 50-period moving average,
they might consider more of a stock buying strategy. Or they might say,
I’m going to look to sell a put with
maybe the intention to try to buy the stock
at a potential discount. Or they actually might try to
actually be a little bit more– try to be making some
income from the premium from some direction,
time decay, and also the contraction of
implied volatility. Selling a put of a
short vertical put are not as directional as
if we bought the stock. That’s very important. So what I’m going to
look to do here is– number one is I’m going to go
look at, actually, the trade page. I’m going to bring up just
a couple of contracts here. And if I go look at, let’s
say, the June expiration, if we go take a look
at the June expiration, we have some options. We have one that’s a 41 delta,
another one that’s a 23 delta. So one is kind of
a little close, meaning greater than a 40 delta. The other one is a 23 delta. Little bit farther
out of the money. Now remember, when we
look at ROR, typically, some investors– they might have an
acceptable threshold of what they’re willing– how much they’re trying
to get if they’re going to be obligated
to buy the stock. So in this case, if we go– now that number, if we sell the
140, the ROR is really 2.06. OK? That is really just
taking the option premium and dividing it by
really the stock price. So pretty close. If I click on that right there,
now notice what I’m doing, OK? So if you said why
is James talking about selling puts today? Why is James talking about
short put spreads here today? Why? Because when the
volatility goes up, prices fall down near the moving
averages or horizontal levels of support. That’s where investors try to
maybe build that inventory when the volatility is high. Now don’t have to, but in
the paper money account, that’s what we’re showing. We are selling that
put for 280, OK? Now remember, we
can only make 280. If the stock were to smash
up through resistance, we might even consider a stock
buying strategy or buying a call. as it’s becoming
more directional and breaking up
through the resistance. We’re just looking to set
this up and say, look, we don’t mind to buy
those shares at 140 unless the premium will
give us what we call our breakeven at expiration. The 137.20 is the
breakeven expiration. There’s the premium
minus the credit. Now what you’re going to see is
James has a question for James. Why are you not
buying the stock? Well, the reason why
we’re not showing an example of
buying the stock is the stock is still below
the resistance level. If the stock is
below the resistance level, that means really,
they’re still selling pressure. If we buy the stock or we do a
long synthetic or a long call, those are the most bullish
strategies that you can pick. Why in the world
would we actually do the most bullish strategies if
sellers are still in control? But why are we selling a
put below that resistance? Well, if the stock
goes down $1 or $2, we’re only going to really
be losing about $0.30, $0.40 on the dollar. We could not have to
nail the perfect entry, and we could
probably still be OK. And again this
goes back to trying to sell the puts when there’s
a little bit higher implied volatility, trying to collect a
bigger premium, bigger premium. We’re also saying, hey,
maybe if the stock goes flat, we also get the time decay. Now Thomas says on
the candlestick, what is the blue
indicator called? I want to kind of make
sure that, Thomas, I’m answering that question. I just want to make sure. Are you talking about
this blue line right here? So this blue line right here is
what we call the 10-day moving average. And you said on the candlestick. I don’t see a blue– that blue line right there
is your 10-day exponential moving average, OK? Thomas, let me know if that
answers your question, OK? Now are there any
other questions that I did not answer that
were also in the chat. Let me know. Now let’s take a quick look at
where the market is currently. So we take a look
at the S&P. The S&P is really sitting right here
about 2/10 of a percent down. The biggest thing
we said yesterday is when the price gets
down below both moving averages, technicians
want to start seeing bullish-type
candlesticks, hammers, piercing lines,
bullish engulfing. They want to start
to really see maybe like a bullish MACD divergence. And they want to see
the price really get back up above the blue line. Now remember, how did the
stocks go up aggressively? Simple that you were
above the blue line. When the stock is above the blue
line, that 10-day exponential moving average, there is more
buying, more aggressive buying. If the price gets below
that blue line and even the red line, there tends to
be more aggressive selling. Keep it simple. Why is the price going down? Keep it simple. There’s more
sellers than buyers. When is it going to stop? Price needs to get back
up above that blue line to let us know
that we’re actually seeing more buyers coming in. Now what I’m going
to do in this case is there might be some investors
that are listening that might say, you know what,
James, I’m not really comfortable about maybe
selling a put or short put when the stock is still
drifting down. I see the upward
trending moving average. But I’m not comfortable as
far as doing the strategy yet. That’s fine. That’s where we bring
in, for example, what’s called pending orders. Now if you take a look at
this, what you’re going to see is I’m going to draw
a diagonal line. This is a critical skill. And when we draw the diagonal
line, what we’re really trying to really do is nick the
top rights of the candlesticks, as many as we can. So we’re trying to
draw the line where we’re nicking the top
rights of the candlesticks. And I don’t think I
did a good job there. This is going to
be a better job. There we go. So when I draw this nick the
top rights of the candlestick, this will probably give
me an idea of maybe where that line of resistance is. Have you ever met
an investor that says, I was looking to
get in on a pullback? But then I didn’t
know when to get in. The main problem
with that comment is they’re never
actually putting a line to say where are we
going from sellers in control to where there’s more
buyers stepping in. Now we’re going to do this,
just going to treat this just like a stock position, OK? And I’ll do this one as a stock. If the stock goes above– now
I’m going to draw this, OK? So if we mark that line, and we
said, OK, 1% above resistance is 177.24. If we take, for
example, let’s say, 1 and 1/2 percent above
the resistance, well, that would mean 178.11. Let me assure you there
is no magic number. If you took $1 above
resistance, $1.50, $2, they’re all just a filter, OK? There’s no magic number, OK? There’s no holy grail
of how far above. So if we just took it in
essence, we said, look, we’re just going to take, let’s
say, $1.50 above resistance, and if I said $1.50,
that’s like saying 1%. So what I’m going to
do is on the chart is I’m going to right click on
the price graph, right click. I’m going to drop down
to actually where it says Buy Custom. And I’m going to go over
to where it says With Stop. Now let me tell you what I’ve
seen in 20 years of markets going up and then pulling back. When the market pulls back,
the volatility goes up. When the volatility goes up,
investors emotion goes up. When investors emotions
go up, guess what they do. They stop watching
what’s happening. The second thing they actually
do is they don’t watch. They do not draw the diagonal
levels of resistance. The third thing they
actually don’t do is they do not put
on pending orders. Then what tends to happen
is the stock pulls back, bounces off support, gets up
through the diagonal level of resistance, and
breaks to the upside. And now after 10 days
after it breaks out, some investors might say
is a good time to get in. So what happens is the
volatility gets you out of your discipline. It’s very important
you understand that. So we’re saying,
yeah, look, we get it. Look, there’s more
sellers and buyers. Yeah, not a big deal. Well, in step 2, we’re
actually going to say, well, where’s the resistance? OK, check. We did that. Step 3, we’re now
going to actually put on a pending order. And we’re going to say, if
we get above resistance by, let’s say, in this case,
we are showing a dollar, about a dollar and
a half, we’re saying if we get to that
price or higher, DAY to GTC, because
we don’t know if that’s going to fill today,
tomorrow, or the next day. But if this price were to
get to that price or higher, it’s buying it at
the market price. If I go down and say,
where’s the stop? We can even take the stop
underneath that 30-day moving average. And some of you’re saying,
keep preaching brother. [LAUGHS] Oh man,
that’s so funny. I saw that of the
corner of my eye. I see you, Kenny. Now 168, OK, 29. Now if we take a
look at that, we’re just taking that 30 period
moving average less 2% to 3%, setting a stop underneath there. Now again, this goes
back to see the pullback. Draw the diagonal line. Step 3, we actually set
up the pending order. Now what happens if the price
never goes to that level? What happens is the
stock is never purchased. You might consider
maybe just having that position for a couple of
days, maybe one or two weeks. But at some point,
if the price were not able to go to that
level, you might not or you might just
cancel that order. You might give it a
certain period of time. If we actually said, we’re going
to go ahead and put that order in right there, I’m just
going to change this. And now what I’m
going to do is I’m going to put this back in or try
to put it in the stock section, OK? So we’re trying to
grow more stocks when we get the prices to
break the diagonal line, OK? Now if I send that order,
there’s the capital. There’s the commission. Now one thing I want to say
is just because the price goes to that level does
not imply that the price is going to keep going up. We don’t know that yet. Now I’ve got to wrap it
up here, but the things we want to cover
here today is we did see a hammer-candle
on the S&P. That’s a better signal
than what we saw yesterday. We talked about
shorter-term pullbacks and intermediate trends. We talked about selling puts. We did two of them. We also talked
about buying stock if it broke through the
diagonal level resistance. We talked about
are you on track? What’s your destination? If you pull up a map and you
type in starting location, I don’t know, you type in a
destination, I don’t know, it’s probably not going
to get you anywhere. With your financial
future, got to have better answers than that. Make sure that you go out
and actually see where you, if you keep going,
what’s that destination? If you actually say, I want $2
million, where should I be now? Take it backwards
just like I showed. What I’d like you to do is I’d
like you to go out and practice looking for stocks that have
pulled back to maybe a 30, a 50 period moving average
or a horizontal support. And I’d like you to practice
really drawing those lines and practice a
short put strategy or a short put
vertical strategy. That’s why I’d like you to do. Now also with that
said, remember that with what we
talked about here today, in order to demonstrate the
function of the platform, we did use actual symbols. Remember that TD Ameritrade does
not make any recommendations or determine the suitability
of any security or strategy. That is up to you to decide
what you want to invest in. Now also I did send you
in the chat a survey link. There’s a quick
five-question survey about how did you
like the class today. And so you can answer
that just real briefly. With that said, coming
up right after me, we’ll be doing a class on– from Ken Rose on the
advanced option strategies. And that’ll be coming up
right at the top of the hour. So stay tuned. Thank you so much for your
comments, your questions, and your participation. What’s your destination? Thank you. Bye-bye.

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