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.
The market was due for a correction following a blow off top in August, and that’s exactly what has taken place for what will now be four weeks of lower stock prices. Mega tech stocks led the way and have also led the way down. Their heavy index weighting just has way too much influence for the market to ignore the direction of the top ten tech stocks that account for over 50% of the Nasdaq and over 25% of the S&P 500.
With that said, there is a bottoming process underway within the tech sector and with third-quarter earnings just around the corner, it should support a renewal of buying interest heading into the Q3 numbers that are forecast to be quite strong. The Atlanta Fed GDPNow real GDP estimate for Q3 2020 is a roaring 30.5%.
Supporting the case for a resumption of the bull trend is some fresh optimism about a stimulus package making its way through Congress next week on a re-shaped and slimmed down package by the Democrats. So, there’s a good chance September can close out on a positive note following a very healthy pullback .
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
Is it just me or does everyone get this sick to your stomach feeling when making a change? As I clean out my file cabinets and sorted through years of files, I cannot help but feel like so much of my life is already in the past. Forcing myself to look into the future, I continue to feel this internal void. Is it a feeling of future regret or simply a natural, nostalgic response to the memories of the past?
I hardly ever get this feeling, mostly because I am a positive person who consistently looks ahead and doesn’t dwell on the past. Searching through these file cabinets is like searching through my youth, which does make me feel somewhat old or in the language of my children, ancient.
All the sectors fluctuated between gains and losses this week in the volatile bottom building session. Technology, Metals, Material, Defense sectors (QQQ, XME, XHB, XLB, XME, XLU) closed in positive territory and retail, healthcare and work from home stocks closed in the red (WFH, XRT, XLV). The markets are oversold and due for a bounce in the next couple of trading sessions.
On the downside, the $318 level on SPY is critical for the bulls. If the SPY is unable to hold on to the $318, the SPY will most likely test the 200-day moving average ($300). However, the bottoming process has started as the U.S. dollar is overbought, closed flat, and should start a pullback in the next few trading sessions.
The TLT continues to trade in the range and does not show any signs of the market reversal. The DXY is trading near key overhead resistance $94-95. Short term, the SPY overhead resistance is at $342 and will trade between $318 and $342 for the next couple of weeks.
The SPY new top is now set at $360 and potentially can be retested again only at the end of October. SPY short term resistance is at $342. I would be a buyer using any short-term corrections and use dollar-cost averaging to accumulate positions at this level. I will look to short the SPY once it approaches $360.
"BUY" signal based on the Aggressive Power Trader Portfolio for tomorrow is at $320 level using SPY and "SELL" signal is at $330 for short-term traders.
The SPY potentially can overshoot the 50-day moving average this week and stage a rebound toward the end of September, the first two weeks of October.
Based on our models, the market (SPY) will trade in the range between $318 and $360 for the next 4 weeks.
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 predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of a 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 stock is trading at $100, I would sell OTM put (strike less than 100) with option BID price close to $0.5.
Lately, market sentiment seems split between optimism about a forthcoming vaccine and the eventual recovery of all the epicenter stocks (travel, restaurants, leisure, etc.) and those of the view that a second lockdown for the economy is an eventuality when flu season arrives. As such, market volatility between the two views is high.
There’s little doubt or argument about the current and future trends of a remote labor force that are clearly in place. Technology has advanced these trends with more corporations finding it a constructive business model from the standpoint of worker flexibility and big cost savings.
For those of the second persuasion, the work-from-home crowd, the Direxion Work From Home ETF (WFH) has served as the go-to ETF for playing the sector. From the Fund’s website “WFH offers exposure to companies across four technology pillars, allowing investors to gain exposure to those companies that stand to benefit from an increasingly flexible work environment.
The four pillars include Cloud Technologies, Cybersecurity, Online Project and Document Management, and Remote Communications.”
Shares of WFH have only been listed since this past June, so for a fund with only a 90-day track record, there’s not much in the way of back testing when trying to apply AI tools, but the stocks within the fund are easily trackable, and with top positions in stocks like Crowdstrike Holdings (CRWD), Zoom Video Communications (ZM) and Okta Inc. (OKTA), there’s plenty of reasons to be excited about trading WFH.
From the short-term chart above, shares of WFH vaulted to $59.40 as the height of the pandemic lockdown phase and have since seen shares pull back to find support at the $52 level where the stock is trading in a well-defined 2-point range. Traders should consider the $52-$54 range as tradable with a tight stop underneath.
TRADE OF THE WEEK
One stock within the remote work space that has garnered a lot of headlines this year is DocuSign Inc. (DOCU), the leader in digital documents that thousands of businesses have adopted to keep the contracts, agreements and all manner of documents that require signatures.
DocuSign offers eSignature: the world's #1 way to sign electronically on practically any device, from almost anywhere, at any time. Today, more than 500,000 customers and hundreds of millions of users in over 180 countries use DocuSign to accelerate the process of doing business.
The company is experiencing phenomenal growth in 2020 with revenue growth forecast to top 42% to $1.38 billion. Earnings are estimated to soar by 83% to $0.57 per share this year and jump 63% in 2021 to $0.93. These estimates are probably low as DocuSign has handily beat estimates for the past four quarters.
A view of the one-year chart of DocuSign shows why the stock has been the subject of so much attention. After starting the year at around $75, shares of DOCU hit a high of $290.20, a 286% gain before some of the air came out. Following a hefty pullback, the stock is tracking along its 50-day moving average (orange) where it is setting up for a resumption of upside price action.