Hi everyone and welcome to the Yellow Tunnel community, an aggressive short-term trading service dedicated to all classes of traders seeking to elevate their trading skills, market awareness and trading profits.
So, the story of the week was that a $62 billion 7-year Treasury auction was met with tepid enthusiasm as the usual buyers of U.S. sovereign debt registered a bid-to-cover ratio of only 2.02, the lowest in years. Even as U.S. Treasuries yield more than any other developed nation’s bonds, the market sees the massive stimulus coming as a weight on the dollar and the debt-to-GDP ratio that is pulling demand down.
As such, the yield on the benchmark 10-yr T-Note briefly jumped to 1.65% before recovering to close Thursday at 1.52%. Both the bond and stock markets sense that juicing an already recovering economy with $1.9 trillion more in Congressional spending followed by a wide-ranging infrastructure package with a $1+ trillion price tag sets up the possibility of an inflation shock.
Although Fed Chairman Powell stated in no uncertain terms that the Fed was in no way considering dialing back the monthly $120 billion in QE scheduled for the balance of 2021, bond trades were yanking back those future dates as to when the Fed would have to taper QE and consider raising the Fed Funds Rate.
To say a lot has happened in the past 48 hours is an understatement, and it will be very interesting to see how the Fed intends to stabilize a very nervous market. At the same time, it is quite normal for the stock market to continue to trend higher even as interest rates rise because earnings are booming.
And at the end of the day, earnings do matter most and historically usurp all other market forces. Once the rotation into more cyclical sectors runs its course, the market will have broader sector sponsorship and resume its long-term bull trend.
NEW WEEKLY POWER TRADER SERVICE
We recently launched our new Weekly Power Trader service that we at Yellow Tunnel are very excited about. Each week on Sunday, our expert traders use our AI Tools to provide the Top Bullish and Bearish Stocks, each with an Entry Price, Target Profit, and Stop Loss.
Also, note that the Weekly Power Trader signals are meant to last for 5-10 days as long as the vector confirms the same direction as the original pick, for stocks we use a target gain of 2% and stop as 2% of the stock price.
Signals have averaged over 75% accuracy in my live trading since inception. Sometimes we hold position 2-5 days by using options (selling OTM BULLISH PUT spread) and targeting 1% target gain and 1% stop loss using stock price. Green color should be interpreted as a bullish signal and Red color as a bearish signal.
CURRENT TRADING LANDSCAPE
The reflationary trade is in full steam with Banks (XLF), Commodities (XLE, DBC, XME) and Transportation (IYT) leading the market. Growth stocks recovered Wednesday but sold off again Thursday, again lagging the value stocks. Short-term, the SPY range remains between $370 and $395.The DXY remains weak. TLT continues to sell off as the yield curve steepens.
Because of the large weightings FAANG and other mega-cap tech companies make up the major indexes, without their participation, or at least some sideways action, the market will have a hard time advancing in any meaningful way. Semiconductor and semi-equipment stocks are acting much more resilient during bouts of buying.
But as long as FAANG continues to take one step forward, two steps back, the S&P and Nasdaq will lag. The good news is that a good many FAANG and mega-tech stocks are now in oversold territory and setting up well for a reversal higher over the next week.
The short-term correction has started and probably has one more week of retesting recent lows. The $388 level is the key support for the SPY short-term. Below that level, the key support is now at $370-$375 and I expect the SPY to retest these levels in the next week.
The bottoming process has started and the worse part of the sell-off is now behind us. The market will finish the bottoming process by end of February and will resume bullish momentum by the middle of March. I would be a buyer using any short-term corrections and use dollar-cost averaging strategy to accumulate positions.
How To Use Our Signals
Once you become a member, I encourage you to review our Live Trading Room recordings to see how I trade Aggressive Power Trader signals in my account. A snapshot of how we produce our Live Trading Room Sessions shows how we pack in a lot of information that can be accessed from whatever device your driving.
As a reminder, consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room, I usually hold a position for 1-2 days.
I allocate less than 5% of my portfolio if the position is being held overnight. On average, less than 1% of the portfolio should be at risk, if you own a position for less than one day.
I enter a position at the predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of the stock price. I target 75% accuracy using these signals.
Few subscribers asked about Options trading using the signals provided. Please review live trading room recordings. I often sell OTM credit put spread using weekly options and collect 0.5% using stock price. For example, if the stock is trading at $100, I would sell OTM put (strike less than 100) with option BID price close to $0.5.
As much airtime is being dedicated to the re-opening of the U.S. economy, it’s hard to ignore the fresh round of bullish price action in the airline sector. Over 66 million doses of COVID-19 have been administered and is setting in motion rising optimism within the airline industry that was only recently on the verge of collapse for a few of the highly leveraged operators.
For traders looking to trade the sector, the U.S. Global Jets ETF (JETS) is the go-to instrument to consider for a blanket play on the top U.S. airline companies.
Looking at the top ten components within JETS, we see the composition of the best-of-breed blue-chip stocks making for a solid collective trading opportunity. What I like about JETS is that the top 10 holdings make up just over 61% of total assets and the top-heavy weighting of the one-through-four holdings.
In the past two weeks, the draft legislation from congressional committees was made public for the Biden American Rescue Plan package. The House Financial Services Committee revealed plans to provide $14 billion in aid to airlines for payroll costs, along with $1 billion for airline contractors.
This blueprint to pour a fresh avalanche of money into the cash-burning airlines got the sector moving up and to the right once this news crossed the tape as can be seen by the chart above when JETS shares turned sharply higher. That and vastly improving COVID-19 data worked as a powerful one-two punch to lift all sector components.
Shares of JETS is an excellent way to reduce risk without taking on a single stock selection. JETS also gives traders plenty of intraday volatility to work with as well, being highly liquid and sporting a very liquid options chain. Lately, the average daily volume for JETS exceeds 10 million shares and tight spreads when trading options.
We’ll be looking to utilize JETS within the Weekly Power Trader service as our indicators and signals dictate. Make sure to be a member so as to not miss out on the next trade we make in JETS and consider heavily to let us guide you through this trade if and when we put it on in what is a heightened landscape of volatility.
TRADE OF THE WEEK
Occupying the number one position in the JETS ETF is none other than sector leader Southwest Airlines Co. (LUV), arguably the most beloved airline stock by long-term holders. The company has arguably the most pristine balance sheet and some cherished hubs to and from key regions and cities within the U.S. states and territories along with a new look.