I hope this newsletter finds you well, as we dive into another exciting week in the world of finance. Before we delve into the current market conditions and my pick of the week, I wanted to share a personal story that unfolded during my recent family trip to the magical realm of Disney World and Universal Studios in Orlando.
With the school doors closing for the summer break, I seized the opportunity to embark on a memorable adventure with my son David and daughter Emma. As we stepped foot into the enchanting park, we were immediately greeted by long queues, vibrant attractions, and a bustling sea of people. The air was brimming with excitement, and it seemed like the world of fantasy had successfully cast its spell on everyone present.
Like any parent on such an adventure, my wallet took a hit as we indulged in delectable treats, coveted Harry Potter wands, and endless rounds of arcade games. Seeing the joy on my children's faces made every penny spent worth it. Yet, amid the jovial chaos, I couldn't help but draw an intriguing observation about the state of the economy.
It became abundantly clear that the thriving crowds in Universal Studios, major theme parks, and resort towns were a stark testament to the absence of any economic downturn - or at the very least, recession did not appear to be hitting these parts of the economy. Everywhere we went, dollars were being spent, and lots of them!
Despite the occasional market fluctuations and uncertainties, people were flocking to these recreational destinations, eager to embrace the magic and create timeless memories with their loved ones. The presence of such a vast multitude reflected a vibrant consumer sentiment that defied the gloomy forecasts often associated with recessions.
While basking in the whimsical atmosphere of the park, a particular incident left an indelible mark on my thoughts. David, my son, is a sensitive kid who sheds tears more frequently than all of his sisters combined. As we anxiously awaited our turn for the thrilling "Mummy" ride, David's anxiety took hold, and tears welled up in his eyes. Sensing his distress, a nearby attendant responsible for securing our seats approached us.
Upon witnessing David's distress, he asked David if he truly wanted to embark on this ride. David declined and to the dismay of both Emma and me, we were escorted off the ride we had eagerly waited an hour for.
At that moment, as I contemplated the concept of helicopter parenting and its implications for our society, the connection to the world of finance struck me. Just as I questioned whether shielding our children from adversity and fear truly benefits their growth, I couldn't help but wonder if the same applied to the market.
In the realm of investments, facing uncertainties, overcoming challenges, and embracing calculated risks are integral to growth and success. Shielding ourselves from every bump in the road could hinder our ability to navigate the ever-changing landscape of finance effectively. Perhaps, in some ways, my concerns about David's fears mirrored my reservations about sheltering ourselves from the inherent fluctuations and challenges present in the markets - as well as, obviously, my son’s well-being and development.
As we move forward in this newsletter, exploring the current market conditions and analyzing potential trade recommendations, let us reflect on the importance of embracing adversity, both in our personal lives and financial ventures. Just as I hope David will conquer his fears with time, may we also find the strength and wisdom to face the hurdles that come our way in the realm of finance, allowing us to grow and prosper.
Recent Trade Review
In this week’s trade review, we will examine our recent bullish position on $TAP, as highlighted in our Profit Accelerator Trader service. To gain a comprehensive understanding of this trade, I invite you to watch the recording of last Monday's live trading room session, which can be accessed here: Live Trading Room Recordings
Our proprietary PAT model identified $TAP as an excellent opportunity to collect extra premium due to the elevated implied volatility this week. Taking advantage of this insight, I held the position for a couple of weeks, allowing us to potentially capitalize on favorable returns. Our strategy involved selling out-of-the-money (OTM) premium and aiming to collect a return of 0.5-1% by holding the position overnight.
As part of our trading approach, we actively seek out liquid names, specifically those with weekly options available. This provides us with increased flexibility and allows for the efficient execution of our trading strategies. Interestingly, approximately half of the option volume in $TAP consists of weekly and 0 DTE (days to expiration) options. This signifies a popular trend among traders, as collecting premium by selling OTM puts and call spreads emerge as one of the most sought-after strategies in a bear market environment.
At YellowTunnel, we believe in leveraging these opportunities to generate favorable risk-reward outcomes for our subscribers. By capitalizing on the volatility and liquidity of such stocks, we aim to enhance returns while effectively managing risk.
For a more detailed analysis of our recent trade on $TAP and to gain insights into our trading approach, I highly recommend reviewing the recording of our live trading room session from last Monday, accessible at this link: [link to live trading room recordings].
As we continue our journey together, stay tuned for more trade reviews, market updates, and trade recommendations designed to support your trading success.
CURRENT TRADING LANDSCAPE
The past week witnessed major U.S. indices trading sideways, but ultimately closing in the green, largely due to strong support from the tech sector. However, market participants should brace themselves for increased volatility during the second half of this year.
Several factors contributed to the market's sideways movement, including a strong dollar, a sell-off in Europe and China, and dismal Services PMI data. Moreover, artificial intelligence (AI) stocks, such as AI, AMD, and NVDA, began to build a top, suggesting a potential shift in momentum. Additionally, rates started to pull back, while GLD/SLV began to rally again, reflecting changing dynamics in the market.
Investors are eagerly awaiting the release of CPI data next week, which will provide further insights into inflation trends. Furthermore, the upcoming Federal Reserve decision holds considerable importance as it could influence market sentiment and direction.
Amidst these market conditions, we find ourselves in a top-building process across all indexes, indicating that new highs may not be achieved this year. It typically takes a few weeks for the top to be set, and by the end of June, we expect the pullback to commence, particularly dependent on earnings and forward-looking guidance. The market seems to be awaiting a triggering event, and the issue of the debt ceiling is one that has caught the attention of many.
Reflecting back on the start of the week, stocks closed in negative territory on Monday, primarily driven by a pullback in the technology sector. Monday morning brought news of a slowdown in the U.S. services sector. The Institute for Supply Management's services index for May fell to a reading of 50.3, below expectations and indicating softer expansion compared to April. While the services industry remained resilient amidst high inflation, the lackluster reading from the ISM report suggests a possible decline in service demand. Investor speculation about a potential slowdown in interest-rate hikes by the Federal Reserve led to a dip in the 2-year Treasury yield.
Despite the initial setback, the stock market made a strong comeback on Thursday, driven primarily by the technology and consumer staples sectors. However, the focus on monetary policy intensified as global economies moved in contrasting directions. As investors reassess their outlook, the upcoming Federal Reserve interest-rate decision gains heightened significance.
Looking ahead, market participants eagerly anticipate the Federal Reserve's interest-rate decision following their policy-setting committee meeting scheduled for June 13-14. Initially, expectations leaned towards a pause in rate hikes due to signs of economic slowdown and moderating inflation. However, recent rate hikes by other central banks have prompted investors to reevaluate their outlook. The Bank of Canada's surprise quarter-point rate hike raised questions about the future path of interest rates in the United States.
In a surprising turn of events, jobless claims exceeded expectations last week. The Labor Department reported an increase of 28,000 claims, reaching a total of 261,000 for the week ending June 3. However, continuing jobless claims declined, indicating the overall strength of the labor market. As the Federal Reserve seeks to address high inflation, employment data remains a crucial factor in their decision-making process.
Global stocks experienced a modest upward drift on Thursday, reflecting a lack of significant catalysts on Wall Street. Nevertheless, optimism remains fueled by hopes for government stimulus measures supporting China's economic recovery. While the market currently lacks clear drivers, sentiment remains positive, buoyed by the potential boost to global trade.
Oil prices initially gained momentum earlier in the week following OPEC's decision to extend production cuts, thereby reducing available supply. However, market sentiment quickly reversed when China, the world's second-largest oil consumer, released discouraging trade data. Weaker-than-expected export figures for May raised concerns about demand, overshadowing OPEC's efforts and resulting in a decline in oil prices. Additionally, news related to Iran exerted further downward pressure on prices.
Given the current landscape, I maintain a stance in the hard landing camp, acknowledging the impact of high-interest rates and a historically strong U.S. dollar. While I anticipate the bulls to hold on to December lows in the next few weeks, as we approach earnings season, there is a high probability of testing and breaking 52-week lows in the coming months.
With regards to the SPY, I believe that any rally will likely be capped at $430-435 levels, and short support is expected within the range of 375-350 over the next few months. Futures data already indicates a high probability of a 25 basis point rate hike during the June meeting. Consequently, I maintain a bearish outlook going into the summer. See SPY Seasonal Chart:
As market conditions evolve, it is important for investors to stay informed, exercise caution, and adapt their strategies accordingly to navigate the potential challenges and opportunities that lie ahead. This is exactly what we offer at YellowTunnel, and with that, we have identified our next Power Trading and Markets sector and symbol of the week!
Federal Chairman Jerome Powell
June 14th Skip or Pause…
…and I am anticipating tons of winning trades…and I will find them for you.
Inflation is running its course.
Recession can either be a soft or hard landing – or not at all.
Bank breakdowns, China reopening, Fed fudging, and Crypto shenanigans...
Rumblings of increasing interest rates and then a quick skip or pause announcement (aka Stagflation).
There are a lot of things happening right now that have thrown the market into fits of upward surges, downward volatility and overall uncertainty.
And traders can't seem to decide if they are fearful or greedy:
Today, I want to preach one message to you: it doesn't matter.
That doesn't mean every single one of the thousands of stocks on Wall Street will go down.
I've built a tool that finds the winning trade… even in this inflation-crazed market we're living in now.
As market conditions continue to evolve, there are indications of potential opportunities emerging in a particular sector known for its stability and resilience in accordance with our A.I. data. After careful examination of the sector's performance and underlying fundamentals, we have reasons to consider it a favorable investment choice for the upcoming period. This sector, known for its integral role in facilitating economic growth and providing essential financial services, has historically demonstrated the ability to weather various market cycles.
The Financial Select Sector SPDR Fund (XLF) is an exchange-traded fund that seeks to track the performance of the financial sector in the United States. It is one of the most widely recognized and traded ETFs focused on financial stocks.
XLF provides investors with exposure to a diverse range of companies operating in various segments of the financial industry, including banks, insurance companies, diversified financial services, and capital markets firms. The fund's holdings typically consist of well-established names in the financial sector, representing both large-cap and mid-cap companies.
As an ETF, XLF offers investors a convenient way to gain broad exposure to the financial sector without the need to individually select and purchase stocks of specific companies. It provides an efficient means of diversifying risk and potentially capturing the overall performance of the financial industry.
XLF is known for its liquidity, making it attractive to traders and investors seeking exposure to financial stocks with ease of buying and selling. It is frequently monitored and analyzed by market participants, as its performance is often seen as a barometer of the health and sentiment of the financial sector as a whole.
Our models are showing a consistent trend towards the upside for XLF and after the recent performance of tech, we have reason to believe that the banking sector could be the next to make waves in the market. As mentioned, the upcoming FOMC and CPI data will strongly influence markets and alongside our A.I. data, we have reason to buy in on this potential trend. If banks are to pop, then let's pick a specific bank in a great spot to add to our portfolio.
TRADE OF THE WEEK - A-List Dimon Trade
JPMorgan Chase & Co. (JPM) is a leading global financial services company and one of the largest banks in the United States. With a rich history dating back over 200 years, JPMorgan Chase has established itself as a prominent player in the banking industry and offers a wide range of financial services to individuals, businesses, and institutional clients.
JPMorgan Chase operates in various segments, including Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and Asset & Wealth Management. The company provides a comprehensive suite of banking products and services, such as retail banking, credit cards, mortgages, commercial lending, investment banking, asset management, and wealth management. Its broad portfolio allows JPMorgan Chase to cater to diverse customer needs and capitalize on opportunities across different market segments.
As a multinational bank, JPMorgan Chase has a strong global presence, with operations spanning numerous countries and serving millions of customers worldwide. The company is known for its financial strength, stability, and extensive network, which enables it to navigate both domestic and international markets.
JPMorgan Chase's stock, traded under the ticker symbol JPM, is listed on the New York Stock Exchange (NYSE) and is a component of major stock market indices such as the S&P 500. The stock's performance is closely watched by investors, analysts, and market participants due to the company's size, influence, and significance in the financial sector.
Investors often consider JPMorgan Chase stock as a representative of the broader banking industry and a reflection of the overall health and performance of the financial sector. The company's quarterly earnings reports, strategic initiatives, and regulatory developments can impact its stock price and influence market sentiment.
With some time to go before earnings season, the FOMC decision and CPI data will likely be the next key market movers. When reviewing our A.I. forecast for JPM we see several encouraging signals.
Holding a model grade of “A” JPM is in our top 10% for accuracy within our data universe. JPM was also able to marginally hold on to gains for the week but moved off its high. With some room for the upside, I’m liking what I’m seeing for JPM.
When reviewing our long-term forecast, we also see a nice range in which JPM can pop. As the gap between Annual Seasonal Price and Current Year Price continues to widen, it appears there could be a good, positive swing for JPM in the coming weeks. With two out of four-time ranges flashing “Higher” readings, I believe JPM is due for a swing toward the upside. See $JPM Seasonal Chart:
This week, I’ll be adding $JPM to my portfolio!
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 85.01% of all trades that I made, with an average profit of 37.35% 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.