The Superleverage Power of Call Options

Avengers Endgame poster

Avengers Endgame Chinese Poster h/t Disney/Marvel

Disney June $115 call

Options Hotline, March – April, 2019

The Superleverage Power of my method was on display this week, as Options Hotline subscribers multiplied their money with our call recommendation on shares of Walt Disney Co.

On Friday, DIS soared like Captain Marvel going full binary.  Following the unveiling of its streaming service, DIS rose 11% from the previous day.  This action helped shares reach our $130 per share price objective (see 03-10-19 Options Hotline and 04-12-19 Options Hotline Alert).

Our recommended DIS June $115 call, triggered 03-11-19 at $4.50, with DIS at $114, traded 04-12-19 at $17.00, with DIS at $130.  That’s +278% in a month, on a 14% move in the underlying shares, with an always known and strictly limited risk!

We’re always seeking to stay a step ahead of the crowd.  Here’s what it looks like on my daily candlestick chart for Disney:

Disney price chart

My daily candlestick chart for Disney, h/t stockcharts.com

So Sarnoff, what is Superleverage?

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Your Daily Bit of Wall Street Wit & Wisdom

money sheet

h/t shutterstock.com

“Earnings, dividends, book value… none of these really matter for moving the overall stock market. The only 2 fundamentals that matter are:
1. How much money is there?
2. How much does that money want to be invested?
Change either of those, and you move prices.”
— Tom McClellan, @McClellanOsc

Follow the money, the big money, the sovereign money.

Central bank monetary largesse provides liquidity that juices markets.

In the latest reporting period, there was a central bank balance sheet contraction.

That’s a clue.

Best regards,

Steve

 

Your Daily Bit of Wall Street Wit & Wisdom

low tide

Low tide at San Felipe, Baja California, Mexico h/t MexInsurance.com

“You can’t eliminate tidal ‘lunatic’ biases. They make folks bullish at tops and bearish at lows.”
— Chris Carolan, @spiralcal, spiralcalendar.com

Psychology plays an enormous role in markets.  Traders and investors struggle to get a handle on their biases.

Failure to check your built-in biases can trip you up in and out of the market.  They can flare up at inopportune times in many of your decisions, from the grocery store to the voting booth.

Often we’re unaware of outside forces exerting influence on human activity.  Don’t be surprised when major world events and market turning points coincide with key cycle dates.  After all, look at what the root of the word “lunatic” is.

Wishing you a safe and sane start to your week.

Best regards,

Steve

 

Your Daily Bit of Wall Street Wit & Wisdom

bearish sentiment chart

h/t Helene Meisler, @hmeisler

“Nothing like price to change sentiment.”
— Helene Meisler

Sentiment in the stock market refers to its mood, whether investors are optimistic or pessimistic.  Sentiment indicators are used to quantify and measure the market’s state of mind.

The notion is that retail investors are a contrary indicator, buying when bullish sentiment has peaked and selling when bearish sentiment has reached its summit.

Overly optimistic or pessimistic readings can point to coming price reversals.

Sentiment indicators can be used as an arrow in your quiver, helping you to target your trades.

The current 10-week rally in stocks is swinging sentiment toward an extreme.  That is worth considering.

Happy Friday and here’s to heading to the weekend in a good mood.

Best regards,

Steve

 

Your Daily Bit of Wall Street Wit & Wisdom

Overanalysis chart

Overanalysis, h/t Larry Pesavento, tfnn.com

“Visible mess helps distract us from the true source of the disorder.”
— Marie Kondo, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing

Tidy up your charts.

It will help you see the market’s movement clearly and help prevent paralysis from overanalysis.

The Marie Kondo organizing phenomenon is sweeping the globe.  Cleaning up your living space is clearly beneficial.

Cleaning up your charts can spark joy in your trading.

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

Windsock

Windsock, h/t iStock by Getty Images

“Technical analysis is a windsock, not a crystal ball.”
— Carl Swenlin

A windsock is a device used to determine the current wind direction and relative intensity.  A crystal ball is a mere prop used to predict the future.

A windsock’s general purpose is to give the pilot a quick reference as to where the wind is coming from and the approximate wind speed.  Before accelerating for takeoff, you glance at the windsock for information so you can give the necessary rudder inputs while the plane is rolling down the runway.

That’s how we apply technical analysis to trading.

Best regards,

Steve

 

 

Your Daily Bit of Wall Street Wit & Wisdom

new moon

New Moon, h/t space.com

“The same Nature which delights in periodical repetition in the skies is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint.”
— Mark Twain

Stocks and commodities have long-term and short-term price cycles.  There are solar and lunar cycles. Awareness of these can provide important information for traders in timing potential trend changes.

The key is to understand that price cycles are approximate.  Watching how prices behave around key cycle dates can be a valuable tool for sensible speculators.  Used in combination with technical indicators, cycles add weight to the evidence.

We’ll see if yesterday’s new moon has an impact today.

Best regards,

Steve

Is The Market Rally Ready To Shift Into Reverse?

Shift to reverse

Shift to Reverse

Are stocks off to the races or set to reverse course?

Analysis and Outlook for the QQQ (Nasdaq 100 ETF):

The Qs are rebounding sharply from their Christmastime low to today’s high. We see shorts getting squeezed and the weaker hands being weeded out.  Tech stocks have steadily moved through resistance to reach higher levels of supply. In the aftermath of December’s waterfall decline, they’ve driven a good distance up in a short amount of time.

A big boost in central bank balance sheets, in large part courtesy of stimulus by the People’s Bank of China, has pumped in the liquidity needed to stave off impending disaster for investors.  The key question now is, “How high are we going to go?”

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Your Daily Bit of Wall Street Wit & Wisdom

Mandelbrot set fractal

Mandelbrot set, fractal photo by Matthias Hauser

“The market is a fractal of human nature.”
— Basil Chapman

The term ‘fractal” was coined by mathematician Benoit Mandelbrot in 1975.  Fractals are simply defined as never-ending patterns that repeat at different scales.  Their property is known as “self-similarity.”  Although fractals are very complex, they are made by repeating a simple process.

Fractals are found and applied in: math, science, nature, art, architecture, music, the stock market, and more.  Arguably, fractals appear in all human pursuits, throughout the natural world, and the universe.

Mandelbrot studied financial markets and used a computer to analyze cotton price movement.  This led him to develop “fractal geometry” and the “Mandelbrot set.”

As Mandelbrot wrote, in his introduction to The Fractal Geometry of Nature (1982), “Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line.”

Markets may appear chaotic and rough.  I like to say market prices don’t travel along a one-way street.  Often, a familiar road map to price movement can be found.  Sometimes the market’s moves are natural and sometimes they are not.  I view it as an exciting and never-ceasing endeavor to catch the market’s twists and turns.

Technical analysis is a combination of art and science.

Human behavior (buying and selling) drives market price movement.  That is why Options Hotline uses Japanese charting techniques.  We use our charts to vividly reveal the human behavior behind headline numbers and help you stay a step ahead of the crowd.

We combine Japanese charting techniques with the best of western technical analysis. The addition of pattern recognition and the Superleverage power of options, to play the probabilities, and now we’re talkin’ sensible speculation.

Good luck in your trading!

Best regards,

Steve