Bank On This Trade: JPM
As earnings season continues and spring arrives, it's crucial to balance work and personal life. Staying updated with economic reports is necessary, but it's equally important to maintain relationships. I spent the weekend with my kids after a successful week of trading and keeping up with the latest news.
While my wife and daughter, Maya, were off at "Mom's Weekend" at the University of Illinois, my son David, my daughter Emma, and I went to Wisconsin to support Emma in her first club volleyball tournament. Emma was over the moon as she won her first tournament game, and David had a blast swimming in the water parks as we all enjoyed the hospitality of the great state of Wisconsin.
The tournament, however, was not without its challenges. Emma's team had a player who was struggling and was often referred to as the "weak link." The events of the tournament reminded me of a book I had previously read. Eliyahu M. Goldratt, an Israeli physicist, philosopher, and management guru, discussed the concept of the "weak link" in his book "The Goal: A Process of Ongoing Improvement." This concept refers to the weakest element in a chain or system that limits its overall performance.
As I watched Emma's volleyball team play, I thought of Goldratt's concept. Sharing this with Emma, I explained that success comes from hard work, not entitlement. By putting in the effort, like strengthening the weakest point in a system, one can achieve surprising success. In life, rewards are based on performance, not entitlement. Working hard can lead to unexpected success. Even though it was challenging to see the team struggle, I encouraged Emma to continue working hard.
This sentiment extends to the stock market as well. As we all know, unexpected events can wreak havoc on even the most well-thought-out investment plans. That's why it's essential to always be prepared for black swan events by hedging your portfolio. Moreover, despite the growing number of bearish predictions for the market, we should expect that the current sideways market could continue longer than most institutional hedge funds expect. In both personal and financial, we must always expect the unexpected and be prepared to adapt to changing circumstances.
With the unpredictable nature of the market and the uncertainty ahead of us, I can’t emphasize enough how vital it is for our readers and members of the Yellow Tunnel community to keep referring to our Live Trading Room so as to maintain a close tie of how our I and my AI platform is navigating us in and out of select trades. It’s FREE and I highly encourage everyone to sign up for the Live Trading Room and keep checking in throughout the trading day.
For more information on the YellowTunnel tools and our trading community, I suggest reviewing our latest Strategy Roundtable, which we hold weekly on YellowTunnel. I also recommend checking out our latest Roundtable webinar in its entirety below:
How To Trade a Bear Market Strategy
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I also want to emphasize to traders how vital a stop-loss discipline is to winning and being successful in an unforgiving market. We employ specific stop-loss instructions with every trade. The buy and sell programs controlled by high-frequency related algorithms can create great profits or cause sudden losses, so it is imperative to maintain an element of controlling risk with each trade.
Recent Trade Review
Welcome to our "Recent Trade Review" section, where we discuss some of our recent successful trades and highlight the strategies that led to our success. This week, we'd like to showcase our successful trade in ABT using our Earnings Power Trader (EPT) services.
See Trade During This Live Trading Room!
During Wednesday's recording of our live trading room, our EPT model identified $ABT as an opportunity to collect extra premium due to elevated implied volatility. I bought the stock on Wednesday and held the position overnight, selling out the money (OTM) premium to collect a 0.5-1% return.
For those unfamiliar with the strategy, selling OTM premium involves selling options contracts that have a strike price outside of the current trading price of the underlying stock. By selling these options contracts, traders can collect premium income while taking on limited risk.
When selecting stocks for this strategy, we look for liquid names with weekly options available. Half of the volume of options traded on US stock exchanges are weekly and 0 DTE (days to expiration) options. Selling OTM puts and call spreads is one of the most popular strategies during a bear market when traders are looking to generate income from their portfolios.
Our SFT model, which uses a proprietary algorithm to scan the market and identify potential trades, has been successful in identifying profitable opportunities for our subscribers.
One of the major differences between our paid and free services is the SMS alerts our paid subscribers receive. These alerts notify subscribers when they should enter and exit a trade, ensuring timely execution and maximizing potential profits.
If you're interested in learning more about our Earnings Power Trader services and the trades we make, check out our live trading room recordings at Live Trading Room Recordings
CURRENT TRADING LANDSCAPE
As corporate earnings and forward-looking guidance are assessed, the market is bracing for a potential pullback in the next two to four weeks. The VIX is hovering near the $17 level, indicating a moderate level of fear in the market. Overhead resistance levels in the SPY are presently at $414 and then $418, with support at $406 and then $402. It is expected that the market will remain sideways for the next two to eight weeks, encouraging investors to take a market-neutral approach and hedge their positions. See $SPY Seasonal Chart below:
I remain in the "hard landing" camp, citing concerns about high-interest rates and a historically high US Dollar. The expectation is that bulls will hold on to December lows in the next few weeks; however, as earnings season approaches, there is a high probability that 52-week lows may be tested and broken over the next few months. The SPY rally is believed to be capped at $418, with short support between 375 and 350 for the next few months. Futures data is already indicating a high probability of a 25-basis-point rate hike in the US during the May meeting.
Looking ahead, the market is expected to be bearish going into the summer, making it important for investors to carefully consider their positions and take appropriate measures to protect their portfolios. With this in mind, I have identified my next PTM symbol and sector, but let's review this past week's happenings before we commit.
Investors are taking a cautious approach after a week of mixed earnings as they evaluate the health of the wider economy ahead of the next Federal Reserve rate move. These concerns come amid worries that higher interest rates could impede growth in the coming months, leading to all three major US indices trading flat to close out the week.
Procter & Gamble and CSX were among the companies that reported their earnings on Friday. While some companies had mixed results, earnings reports took a slightly more positive turn on Friday, with Procter & Gamble's stock rising after the company's results exceeded Wall Street's expectations for top and bottom-line growth.
However, not all companies performed as well as Procter & Gamble, with KeyCorp missing profit expectations for the first quarter due to higher provisions set aside to cover bad loans. The lack of investor confidence among local lenders has led to peers Charles Schwab, M&T Bank Corp, and Citizens Financial Group Inc seeing their deposits take a hit.
At the midweek point, the stock markets experienced mixed reactions to a series of corporate earnings reports, with some stocks underwhelming investors and raising concerns about the strength of the economy. Notably, Tesla, AT&T, and American Express all missed their earnings expectations, leading to drops in their respective stock prices.
Tesla's stock, in particular, saw a sharp decline of 9.8% due to underwhelming first-quarter automotive gross profit margins. Meanwhile, AT&T's stock dipped by 10% due to a decrease in subscriber growth for its postpaid phone plans, and American Express experienced a 1% drop in its stock price as it missed earnings expectations and anticipated defaults. Netflix's second-quarter outlook was also disappointing, leading to a 3.2% drop in its stock.
The markets were further concerned by the latest release of labor data, which showed an increase in first-time unemployment claims filed by Americans to 245,000 last week, suggesting a softening labor market. The Federal Reserve's latest Beige Book report on economic activity indicated that overall economic activity had little changed in recent weeks, employment growth had moderated slightly, and overall price levels had risen moderately.
Keeping this in mind, investors should brace themselves for a potential pullback in the market in the coming weeks, as all indexes are currently experiencing a process of building a top. The timing of the pullback will depend on the forward-looking guidance provided by companies during earnings season.
The 2-year and 10-year yields have recently jumped above multi-month support levels, and investors should keep a close eye on the 10-year yield, which is currently at 3.5%. If the yield does not hold at 3.2%-3.5%, it is likely that we have seen the top in the market for the next couple of months. In such a scenario, investors should consider selling into any further rallies.
Money market funds have reached historical levels of 2 trillion dollars, which is a situation that is similar to what happened in 2008. Cash deposit outflows are currently at a multi-year high, and as a result, when MMF pays an average of 4.8%, investors are incentivized to move money from equities to MMF and bonds. Retail investors are continuing to move cash into money market funds, and this has a long-term negative effect on lending, bank earnings, and deposits for banks such as Morgan Stanley and Goldman Sachs.
Despite these mixed results, overall bank earnings have been slightly better than expected, alleviating concerns about pressure after regional bank failures. The overall financial sector has been one of the strongest performers on the S&P 500 this month, making it a perfect opportunity.
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SECTOR SPOTLIGHT
After careful analysis of the current market conditions, YellowTunnel A.I. has identified a promising sector that is poised for growth in the coming weeks. This sector is a key part of the US economy and has recently shown potential for strong performance. Investors should keep a close eye on this sector as we go through earnings season after the recent struggles it has seen.
The Financial Select Sector SPDR Fund ($XLF) is an exchange-traded fund that seeks to track the performance of companies in the financial sector of the S&P 500 Index. This ETF provides investors with exposure to a diversified basket of financial stocks, including banks, insurance companies, and other financial services firms. As one of the largest sector ETFs, $XLF is widely used by investors as a benchmark for the financial sector and is often viewed as a barometer of the broader U.S. economy.
After last month's financial sector shake-up, where banks faced pressure following sweeping sell-offs, many banks and the overall banking sector are now offering an attractive price at which to enter the sector. Our AI models have analyzed the current market conditions and detected potential opportunities within the banking sector, suggesting that this might be a good time to invest in the sector. With the recent selloffs creating a favorable entry point, investors may want to consider adding exposure to the banking sector, and our AI models suggest that the timing could be right for a potential upside. See 10-day Predicted Data for XLF:
If banks are presenting the correct levels for a rally and our A.I. models agree, then let’s double down and pick a specific symbol within this sector that is showing great value.
TRADE OF THE WEEK - Bank On This Trade: JPM
JPMorgan Chase & Co. (JPM) is a global financial services company that provides investment banking, asset management, and consumer and commercial banking services. Headquartered in New York City, the company operates in over 100 countries and has assets of over $3 trillion. JPMorgan Chase is considered one of the largest and most diversified banks in the world, with a reputation for strong risk management and solid financial performance. As part of the Dow Jones, its stock has historically been regarded as a stable investment, being influenced by macroeconomic trends and the overall performance of the financial sector.
With a model grade of "A," JPM is in the top 10% of accuracy within our data universe. When inspecting the 10-day forecast, we see several positive signals that reinforce the notion that the symbol should see a bull run sooner rather than later.
Looking at the predicted data, we see a steady and one-directional vector trend which indicates the toolbox is seeing upward momentum for the symbol. When looking for reliable signals, we look for one-directional trends that are steady from a high-accuracy symbol; JPM is just that!
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 84.85% of all trades that I made, with an average profit of 37% 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.
Go to our website at www.yellowtunnel.com and make one of our services your default trading system where the AI that powers my all-world, the proprietary platform, can help you make 2023 the best trading year of your portfolio yet!
One more thing, I've had the opportunity to take additional action with a great organization supporting families in Ukraine directly. Gate.org is a foundation where fundraising is held for specific families, allocating funds to multiple families currently living in Ukraine. I am on the board of directors for this great initiative and encourage everyone to check it out and donate if possible. The war in Ukraine is escalating and families are being negatively impacted and displaced daily. To learn more about this initiative to help families, please see the link below:
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