Q2 has officially come to a close, marking the midpoint of the year. As we navigate through these uncertain times, the lingering questions of inflation and the Federal Reserve's next moves continue to weigh on our minds. Volatility remains a constant companion, making it all the more crucial to stay informed and adapt our strategies accordingly.
Amidst these financial deliberations, our book club has been a source of intellectual stimulation and camaraderie. Recently, we embarked on an intriguing experiment where we randomly selected a topic to discuss. This week, the origins of life took center stage, and the conversation veered into the realms of science and spirituality.
As I delved into my research, I found myself immersed in the contrasting viewpoints of religion and science. According to the ancient texts, the world was created by God in a mere seven days, seemingly out of nothing. On the other hand, science presents the "Big Bang Theory" as the prevailing explanation for our existence.
The idea that our entire universe originated from a minuscule point, expanding over time, fascinated me. Contemplating the absence of time, space, matter, and energy before the explosion was a mind-boggling endeavor. I even stumbled upon an intriguing Wall Street Journal article on expanding one's mind through psychedelic drugs in Silicon Valley, but, already having enough on our plate to discuss, I realized it was not the path to enlightenment for our book club discussion!
Interestingly, it became apparent that both theories, in their own way, support each other. The fundamental difference lies in whether our existence is a mere random occurrence in a timeless and spaceless universe or if there is some divine intervention, a purpose behind our being. Needless to say, we didn't reach a unanimous consensus on this thought-provoking topic.
Drawing a parallel to the world of trading, our book club experience highlighted the importance of engaging in healthy dialogue and considering multiple perspectives. Just as we examined various viewpoints on the origins of life, it is equally vital for traders to avoid over-trading their accounts and ensure their trades are appropriately sized. By expanding our vision and embracing diverse opinions, we fortify our decision-making processes and improve our overall financial acumen.
As we embark on the next quarter, let us remain open to new ideas, challenge our assumptions, and continue our quest for financial knowledge. Remember, it is through intellectual discourse and a well-rounded perspective that we can navigate the ever-changing currents of the market.
Wishing you fruitful conversations and prosperous trading ahead!
Recent Trade Review
This week, I’d like to highlight a recent trade that unfolded within our Profit Accelerator Trader (PAT) service - one that we’ve traded in the past and easily profited from. During our live trading room session on Tuesday, Transocean Ltd (RIG) caught the attention of our PAT model, presenting a promising opportunity for our members. For those who missed the session, you can catch the recording here: https://yellowtunnel.com/live-trading-room-recordings#live-trading-room-recordings
To capitalize on the potential of $RIG, a strategy involving the sale of calls against the stock was employed. This technique allowed us to collect additional premium, particularly in light of the elevated implied volatility surrounding the stock. By holding this position for a couple of weeks, we aimed to extract a return ranging from 0.5% to 1% by selling out-of-the-money options.
This particular strategy is commonly known as a covered call. It involves simultaneously owning the underlying stock (in this case, $RIG) and selling call options against it. By doing so, we effectively generate additional income from the option premium received, while still maintaining ownership of the stock. This approach is often favored when the trader has a neutral to slightly bullish outlook on the stock's price movement.
One of the key criteria we consider when selecting trades is the liquidity of the underlying security and the availability of weekly options. In this case, we focused on liquid names with weekly options available, as these provide greater flexibility for adjusting our positions and capturing short-term profit opportunities. Additionally, we observed that a significant portion of the options volume for $RIG consisted of weekly options and options expiring on the same day (0 DTE options).
It's worth highlighting one of the major advantages of our paid services over the free alternatives: the timely delivery of SMS messages. Subscribers to our PAT service receive real-time notifications, ensuring they are promptly informed about optimal entry and exit points. This allows our members to take advantage of trading opportunities without delay, maximizing their potential returns.
As we continue to review and analyze our trades, we remain committed to providing our members with valuable insights and strategies that can enhance their trading experience. Keep an eye out for further updates and opportunities within our PAT service.
CURRENT TRADING LANDSCAPE
As we bid farewell to the first half of 2023, the U.S. stock market witnessed gains across all three major indices during the final trading week of Q2. Mega-cap tech stocks led the charge, driven by a slight cooling in inflation data, offering a glimmer of relief to investors. However, amidst this positive sentiment, the market faces challenges as it tests critical support levels and grapples with overhead resistance.
Our market models are signaling a potential overbought scenario, suggesting the likelihood of a looming negative trend. As we step into the second half of the year, heightened volatility should be anticipated, demanding a cautious and strategic approach to trading.
Key support levels for the SPY were put to the test, ranging from $431 to $432, while the market struggled to surpass overhead resistance at $434. These crucial price points will be critical to watch in the coming weeks as they could dictate the market's trajectory. See $SPY Seasonal Chart:
Inflation data became a focal point as the Federal Reserve's preferred measure, the core personal consumption expenditures price index (PCE deflator), declined more than expected in May. Although this offers reassurance that red-hot prices may be easing, the central bank is likely to continue raising interest rates to combat inflation.
The latest batch of PCE data should temper concerns about the extent of further tightening by the Federal Reserve. Despite hitting the pause button on rate increases in June after ten consecutive hikes, the central bank has warned that additional increases may still be necessary.
U.S. bond yields declined following the inflation data release, with the 2-year Treasury note yield reaching 4.862% and the 10-year Treasury note yield dropping to 3.828%.
During the week, the Dow Jones Industrial Average recorded gains, bolstered by positive economic data indicating steady progress in the U.S. economy. Revised figures for first-quarter GDP showcased stronger growth than initially expected, driven by increased exports and consumer spending.
While some major financial institutions, such as Goldman Sachs Group and JPMorgan Chase, experienced significant stock gains after passing the Federal Reserve's stress test, not all companies shared the positive sentiment. Nike's shares fluctuated, and Micron Technology faced challenges due to concerns about potential restrictions on chip sales to China.
Looking ahead, the market remains in a sideways trading pattern, and heightened volatility is expected during the second half of the year. The tech sector has shown resilience, but the market's overbought conditions may lead to further challenges in the coming weeks.
Rotation into value stocks and building tops in technology stocks indicate shifting dynamics in the market. While the market could continue its upward trajectory, caution is warranted, especially considering the Federal Reserve's hawkish stance and high-interest rates.
Small caps, regional banks, and cyclicals are showing signs of a pullback, while tech remains in an uptrend. The outlook for the market suggests that it may be capped in the range of $440 to $450 for the SPY, with strong support levels at $400 to $430 in the coming weeks.
With this in mind, I have identified the next symbol I will be adding to my portfolio - and my A.I. models agree!
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As we analyze the current market conditions and delve into the fundamental and technical levels of various symbols, there are indications that a specific sector of stocks may present an intriguing opportunity in the coming weeks. It is worth noting that factors such as easing inflation data, positive economic indicators, and potential support levels suggest a potential uptrend for this sector. With a cautious approach, careful evaluation of individual stocks within this industry could unveil promising investment opportunities in the near future. Stay tuned for A.I. analysis and insights regarding potential buy signals in this sector as we closely monitor market developments and conduct a thorough assessment of this sector.
The U.S. Global Jets ETF (JETS) is an exchange-traded fund that provides investors with exposure to the global airline industry. The ETF seeks to track the performance of the U.S. Global Jets Index, which includes companies in the commercial airline, aircraft manufacturing, and airport services industries. $JETS offers a diversified approach to investing in the airline sector, allowing investors to benefit from the potential growth and recovery of the industry as well as the overall global travel market. With its focus on a broad range of aviation-related companies, $JETS aims to capture the potential upside of the airline industry while managing risks associated with individual stock selection. It serves as a convenient investment vehicle for those looking to gain exposure to the airline sector as a whole.
As seen above, our A.I. models are predicting an upward trend in the coming days for JETS. The symbol has moved off its recent highs and has shown the ability to develop new highs as we get further and further away from the COVID shutdown. With more and more people traveling, as reported in the latest consumer and GDP reports, there is an opportunity to be had with JETS.
While the symbol itself is showing a strong and positive forecast, there is one specific symbol within the airline industry that I will be looking to add in the coming days.
TRADE OF THE WEEK - $DAL Ready for Takeoff
Delta Air Lines (DAL) is one of the leading global airlines providing passenger and cargo services. With a strong reputation for operational excellence, Delta Air Lines has established itself as a key player in the aviation industry. The company operates an extensive network of domestic and international flights, catering to millions of travelers each year.
Delta Air Lines has demonstrated resilience and adaptability, successfully navigating through challenging periods, including the recent COVID-19 pandemic. The company has implemented strategic measures to enhance its financial position, optimize its fleet, and adapt to changing market conditions. As travel demand recovers, Delta Air Lines is well-positioned to benefit from the rebound in passenger traffic.
Furthermore, Delta Air Lines has a track record of delivering strong financial performance. The company has a robust balance sheet and a disciplined approach to cost management, allowing it to maintain profitability even during turbulent times. Delta Air Lines has also demonstrated a commitment to shareholder value through dividends and share repurchase programs.
The current market conditions present an opportune time to consider Delta Air Lines as a potential investment. With the gradual resumption of air travel, the company stands to benefit from the increasing passenger demand. Additionally, Delta Air Lines' strong operational capabilities, solid financial position, and strategic initiatives position it favorably in the market.
DAL sports a model grade of “B” putting it in our top 25% for accuracy within our data universe. The symbol has booked gains in recent weeks and is putting together an impressive year. Still, there is room for the upside! DAL traded above $53 pre-pandemic and has slowly mounted a comeback toward that level. When reviewing our A.I. We see several encouraging signals.
The steady and one-directional trend we see in DAL’s forecast is exactly the type of bullish run we look to back. With a vector score of 0.55% DAL is riding the momentum of its recent gains and, based on our 10-day predicted data, could continue to trade in such a fashion. DAL’s vector trend is positive and steady and one that I find reliable based on the given information. See 10-Day $DAL Predicted Data:
As we enter the third quarter of 2023, it becomes crucial to stay informed about the dynamic nature of the market. Leveraging the capabilities of artificial intelligence, I have identified a potential profit-making opportunity and devised a strategy for the upcoming week.
This week, I’ll be adding $DAL 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: