Best August Volatility Trade: $PSQ
Greetings to all members of the Yellow Tunnel community!
The past week has been marked by a flurry of earnings reports, all taking place in the aftermath of the latest actions by the Federal Reserve. The tech sector, in particular, experienced significant movements, capturing the attention of traders. Additionally, the release of employment data provided valuable insights into the state of the U.S. economy, raising the stakes even further. Amidst all this, there's an imminent focus on the downgrade of U.S. ratings, making it a "make or break" scenario for many investors. With big players like Apple and Amazon announcing their earnings and unveiling July's unemployment data, the tension amid the bull market continues to mount.
Back at home...well, actually, we weren't quite home! My wife and I just returned from a delightful getaway to the Sunshine State of Florida - and what a rejuvenating break it was from the daily hustle and bustle. This time, we had the pleasure of enjoying the beauty of Florida with just each other's company, relishing the rare moments of just the two of us away from the kids. As we explored the sandy beaches and picturesque landscapes, we couldn't help but reminisce about the earlier days when our children were little and how quickly they've grown into remarkable individuals. It's truly bittersweet to witness their journey toward independence and self-reliance. Our two oldest daughters are now fully immersed in their summer jobs, eagerly preparing to return to school to chase their dreams, while our youngest daughter is enthusiastically honing her volleyball skills at camp, eagerly awaiting the nerve-wracking tryouts. And then there's David, our youngest bundle of joy, who still depends on us but now shares his time with a nurturing nanny, making those moments we spend together even more cherished.
As we soaked in the vibrant atmosphere of Florida, I couldn't help but draw parallels between the bustling activity of the state and the ever-changing ebb and flow of the financial markets. Just like the crowded streets and busy highways, the markets are brimming with activity, each move potentially carrying its own significance.
Interestingly, during our trip, I stumbled upon a captivating fact that shed light on the enigmatic nature of both life and finance. Despite the perceived allure and strong influx of immigrants to Florida and low taxes, there has been a surprising net outflow from Miami-Dade County in recent years. This unexpected trend intrigued me, making me ponder how appearances can often deceive, and what we think is popular may not always be the most fruitful path.
On the flip side, it seems California, despite an apparent trend of big business leaving the state, is experiencing a different phenomenon altogether, drawing in an influx of millionaires. This stark contrast in migration patterns serves as a valuable reminder that the world of finance, much like life, can be filled with surprises and nuances that aren't immediately apparent.
With this realization, I thought about the current state of the market. Almost everyone seems to be bullish, exuding confidence and optimism. However, we all know that the market can be unpredictable, and just like the twists and turns of my Florida trip, it can take a 180-degree turn and become bearish. As we wrap up earnings season, keep a close eye on the latest inflation data, and await the next Fed decision, the next few weeks will likely be telling of what's to come.
Life and finance share the common thread of unpredictability, and at YellowTunnel we are excited to continue exploring their relationship and this journey together, discovering new opportunities, uncovering hidden gems, and making well-informed financial choices that will shape our futures. As we embark on this path, we invite you to join us in exploring the world of finance with a keen eye and an open mind. Let's learn from the unexpected, find strength in our adaptability, and strive to achieve financial success even in the face of life's surprises.
It was a beautiful trip and a beautiful reminder.
Just like our children growing up, the market always evolves.
Recent Trade Review
In our pursuit of profitable trades, our Profit Accelerator Trader services (PAT services) recently recommended Schlumberger Limited ($SLB) as a potential opportunity. The decision was informed by our PAT model, which effectively identified the promising prospects of $SLB on 7/31/23. Acting on the analysis, I entered into a position with $SLB - and was able to book gains!
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To revisit the details of this trade, you can watch the recording of our live trading room session from that Tuesday. Click on the link below to access the live trading room recordings:
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As we continue to explore and capitalize on potential trades, our commitment to providing valuable insights and timely updates remains steadfast. Stay connected with us for more trade opportunities and in-depth analysis to elevate your trading experience and profitability.
CURRENT TRADING LANDSCAPE
The U.S. stock market saw a mixed, driven by a flurry of key quarterly earnings reports and the release of significant employment data that shed light on the state of the economy. Friday’s key data report showed employers added 187,000 jobs last month, marking the second consecutive month of slowed payroll growth as the labor market continued its gradual rebalancing. Despite the positive boost to the end of the week, the market started to pull back, and we anticipate increased volatility during the second half of this year.
Given the economic data suggesting a low probability of recession and the significant pullback in the DXY, I am shifting to a market-neutral stance. However, I still maintain caution, believing that the SPY rally may be capped at $450-470 levels, and short support remains at 400-430 for the next few months. See $SPY Seasonal Chart:
Going back to the start of the week, this week was characterized by a turbulent trading environment with mixed economic indicators, creating uncertainty among investors. The U.S. government's credit rating downgrade by Fitch Ratings had a significant impact on the trading landscape during the week. Fitch lowered the rating from AAA to AA+ due to concerns about fiscal policy and political dynamics. This move raised uncertainties among investors about the stability of the U.S. economy and its potential impact on financial markets. While the downgrade was taken seriously, some optimism persisted due to strong economic growth and declining inflation, which suggested the economy's resilience. The White House disagreed with the downgrade, attributing it to political factors rather than the overall economic health. Nonetheless, investors remained watchful for any potential fallout and its implications on interest rates and market sentiment.
Also impacting markets this week significantly was the continuation of earnings season, specifically with reports of major companies like Apple (AAPL) and Amazon (AMZN), which provided critical insights into the health of the technology sector and the broader market sentiment.
Apple's fiscal third-quarter earnings report garnered attention as it surpassed analysts' expectations. The company recorded revenue of $81.8 billion, matching the consensus, but it fell slightly from nearly $83 billion in the previous year. Of particular concern was Apple's iPhone business, which reported revenue of $39.7 billion, down from $40.7 billion in the same period last year and below analysts' forecasts. Apple projected a 1% revenue decline for the current fiscal fourth quarter ending in September, which, if realized, would be slightly worse than Wall Street's expectations. The disappointing outlook led to a notable downgrade of Apple shares by Rosenblatt Securities on Friday, resulting in a 3.2% decline in the stock price.
Amazon, on the other hand, delivered an impressive performance in its second-quarter earnings and sales. The company reported revenue of $134.4 billion, up from $121.2 billion in the year-earlier quarter. Earnings rebounded from a year-earlier loss of 20 cents to 65 cents per share. A significant highlight was the strong growth of Amazon Web Services (AWS), which outperformed expectations in the second quarter. AWS sales reached $22.1 billion, marking a 12% increase from the previous year and exceeding Wall Street estimates. This robust performance resulted in a remarkable 11% jump in Amazon's stock price, making it the leading gainer in the S&P 500.
The contrasting outcomes of these two tech giants underscored the market's sensitivity to earnings reports during this volatile period. Apple's relatively lackluster results and cautious outlook raised concerns about the broader tech sector's growth potential and contributed to the pullback observed in technology stocks.
However, Amazon's strong performance and promising guidance provided a ray of optimism, particularly in the e-commerce and cloud computing sectors, which are considered essential drivers of future growth.
During this eventful earnings season, companies across various sectors reported their quarterly results, leaving investors with mixed reactions. Caterpillar, the heavy machinery manufacturer, emerged as a standout performer, delivering impressive earnings that surpassed Wall Street's estimates. The company's robust performance showcased strength in its operations, reflecting positively on the broader industrial sector.
On the healthcare front, Humana, one of the largest Medicare Advantage insurers, also exceeded earnings expectations during its second quarter, sparking enthusiasm among investors. The company's optimistic outlook and strong growth projections for individual Medicare Advantage membership added to the positive sentiment. However, not all companies fared as well. CVS Health, after reporting better-than-expected earnings initially, faced uncertainties when it revised its earnings targets for 2024 and 2025, raising concerns about its long-term profit growth. Consequently, the healthcare company experienced a 2.4% decline in premarket trading, leaving investors cautious about its future prospects.
One key question lingers following the results of key earnings data. The question of whether AI stocks can lead the market and provide increased revenue guidance remains on everyone's minds, particularly in light of mixed results from companies like Microsoft (MSFT), AMD, and TSM. These considerations, combined with global events and economic data, are likely to shape the market's trajectory in the weeks ahead.
Looking ahead, the market is expected to remain volatile in the second half of the year. Investors are closely monitoring economic data and corporate earnings, particularly the upcoming job openings and labor turnover survey and the Institute for Supply Management's manufacturing and services purchasing managers' indexes, for further insights.
The U.S. job growth has been slowing to a more sustainable pace, with 187,000 jobs added in July, slightly below economists' expectations but still above the pre-pandemic monthly average. The unemployment rate dipped to 3.5% in July, indicating a tight labor market, and Federal Reserve officials are closely observing the labor market's moderate growth as they assess future interest-rate hikes to combat inflation.
Investors had their attention fixed on several critical factors affecting the trading landscape. The downgrade of U.S. ratings and better-than-expected JOLTS data led to a spike in volatility, as reflected by the VIX index. The DXY, a measure of the U.S. dollar's strength against other major currencies, continued its rally, while long-dated treasuries experienced a sharp surge and retested October highs in yield. Additionally, all eyes were on the earnings announcements of tech giants Apple (AAPL) and Amazon (AMZN), as well as the release of July's unemployment data.
However, not all sectors experienced positive movements. European stocks, small caps, technology companies, regional banks, and cyclicals started to pull back, and the tech sector broke its uptrend. China's stimulus talks had a notable effect, driving electric vehicle (EV) and commodities stocks higher in response to the developments.
With this in mind, I have selected my next PTM symbol and sector of interest! But more on that in a bit.
Looking ahead, next week will feature earnings from BioNTech, Tyson Foods, United Parcel Services, AMC, Lyft, Walt Disney, Alibaba, and Spectrum. Key economic reports to release will include Consumer Credit on Monday, U.S. Trade Balance and Whole Sale Inventories on Tuesday, CPI reports on Thursday, and PPI data on Friday.
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SECTOR SPOTLIGHT
As the market sentiment remains fervently bullish, investors are keeping a close eye on various sectors that could see positive boosts in the coming days. However, amidst the optimism, some experts are cautiously considering the potential of shorting the market in the short term. While the overall market trend appears positive, there are indications that certain sectors might experience corrections or pullbacks. Shorting major indices can present a unique buying opportunity for investors looking to capitalize on potential market dips. By identifying symbols that allow shorting major indices, investors can strategically position themselves for potential gains as the market sentiment evolves.
In the current market climate, shorting major indices offers a hedge against potential downturns while still benefiting from the ongoing bullish momentum. Certain sectors, such as technology and cyclicals, have experienced significant gains and could be vulnerable to profit-taking or market corrections in the near future. This creates an attractive opportunity for investors looking to capitalize on short-term price movements.
Symbols that allow investors to short major indices, like the S&P 500 (SPX), Nasdaq 100 (NDX), and Dow Jones Industrial Average (DJIA), provide a unique buying opportunity for those anticipating short-term market adjustments. By shorting these indices, investors can potentially profit from market declines or volatility without committing to long-term positions.
However, it is crucial to exercise caution and employ risk management strategies when shorting the market. Bullish sentiment has been a driving force in recent market gains, and unexpected positive news or events could lead to rapid rebounds. As such, investors should be mindful of market dynamics and employ prudent risk management practices.
As the market sentiment remains bullish, certain sectors may experience corrections or pullbacks in the coming weeks. Shorting major indices presents a unique buying opportunity for investors seeking to capitalize on potential market dips while managing risk effectively. By identifying symbols that allow shorting major indices, investors can strategically position themselves for potential gains and navigate the evolving market sentiment with confidence.
And keeping with that criteria, I believe I have just the right symbol for the job!
TRADE OF THE WEEK - Best August Volatility Trade
$PSQ is an exchange-traded fund (ETF) offered by ProShares that seeks to provide investors with the inverse or opposite daily performance of the Nasdaq-100 Index. In simple terms, if the Nasdaq-100 Index goes down, $PSQ aims to go up by a similar percentage, and vice versa. It is designed to offer investors a way to profit from potential short-term declines in the technology-heavy Nasdaq-100.
Based on the current market sentiment and the cautious outlook on certain sectors, $PSQ presents an appealing buying opportunity. The current bullish sentiment has propelled technology stocks and the Nasdaq-100 to record highs. However, as experts are considering potential corrections or pullbacks in the near future, $PSQ offers a strategic way to capitalize on such short-term market adjustments.
Investors looking to hedge against downside risk in the technology sector and the broader market can consider $PSQ as a defensive play. By owning shares of $PSQ, investors stand to benefit if the Nasdaq-100 experiences declines or increased volatility. As mentioned earlier, shorting major indices like the Nasdaq-100 can be a unique buying opportunity during bullish market phases, as it provides a counterbalance to potential market swings.
Given the potential uncertainties in certain sectors, particularly technology, $PSQ's inverse relationship to the Nasdaq-100 makes it a compelling choice for investors who seek to protect their portfolios from potential market declines while still participating in the ongoing market optimism. Our A.I. models appear to agree!
Trading right above its 52-week low, PSQ has plenty of room to the upside and our 10-day forecast is showing just that. With an impressive vector trend and plenty of headway, I believe in PSQ’s ability to book gains in the coming weeks. See 10-Day Predicted Data for PSQ:
appears to be a favorable investment option for those seeking to hedge against potential short-term market declines. As an ETF designed to provide inverse performance to the Nasdaq-100 Index, $PSQ offers a unique buying opportunity to navigate the evolving market landscape with a defensive approach.
This week, I’ll be adding $PSQ to my portfolio!
As always, make informed investment decisions and stay updated with market trends and news to navigate the ever-changing landscape of the tech sector.
Finally, our track record speaks for itself from the standpoint of a Winning Trades Percentage, Average Return Per Trade, and Net Gain. Just take a look:
The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 85.26% of all trades that I made, with an average profit of 37.28% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind that stands alone in the marketplace for superior trading advice where our numbers and results speak for themselves.
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Wishing you a week filled with resilience, growth, and prosperous opportunities!