Jul 16, 20226 min
Hey Wealth Builders!
The consumer price index increased 9.1% from a year ago in June, above the 8.8% estimate. Surprisingly, the markets didn't seem to react much with the major indices ending flat. Could it be that we are close to a bottom? More on this below. 👇
Technical Analysis 📈
SPY
SPY is still trading between the downward trending channel. The ETF rejected last week's $390 level, but it seems we are going to retest it again.
QQQ
Similarly, QQQ is going to retest it's downward trending resistance denoted in pink.
DIA
On the other hand, it seems like DIA still has some ways to go before touching its downward trending magenta resistance.
AAPL
As AAPL advanced up this week, we landed right on the $150 resistance. This area served as resistance back in late May and also served as support back in mid March.
AMZN
AMZN rejected its resistance line again and still is in sideways consolidation.
GOOGL
GOOGL is set to have their 20-for-1 stock split. You may not see this take effect until Monday's market open. Keep in mind that the stock is still trending sideways and may potentially drop lower. Though I absolutely love the fundamentals of the company, this stock is trading in line with the broad stock market. Before we get too excited, let's wait to see a confirmed upward trend with higher highs and higher lows before we start any covered call trades. It is important to always look at the stock market as a whole.
Observe the 1-Month Charts
I've been noticing that there have been some stocks that have been either trending sideways or higher over the past month.
Sideways Trending Stocks:
AMD:
PYPL:
META:
Upward Trending Stocks:
AAPL:
SBUX:
V:
COST:
Though we are still mostly trading between an overall downward trend for many stocks in the broad S&P500, there have been a couple of stocks that seem to be bottoming out. Usually after a market has a sell-off, many institutions see this as a "reset" to their portfolios with them having a lot of cash on the side. They may then be strategic on how to reallocate their portfolio by choosing more stable stocks. This is called a "flight to quality."
In the next couple of weeks and as we approach earnings, we are going to see if there are any interesting patterns, holds above support lines, and trend changes. If we see some stocks start to rise a little faster than others, this may be an indication that institutions are favoring these stocks, while they leave other higher-risk stocks behind.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1: Hi! I'm brand new to investing. I'm setting up my brokerage account and deciding which long term stocks to start with. I know Google is going to split stock this Friday, is it a good idea to purchase these stocks at a bearish market?
A1: Woohoo! How exciting! We are not purchasing any stocks/ETFs including GOOGL right now.
Q2: I read in your latest member positions Q&A to not buy or sell any shares and all you're doing is selling covered calls or spreads at the moment. Does that mean we should not buy any stocks or ETFs right now until the market proves to be in a continuous upward trend?
A2: Correct! As mentioned in our previous Q&A we are just being patient, collecting premium and depositing in our brokerage accounts each month. We are not recommending to purchase any stocks or ETFs right now until there is a trend reversal, positive market sentiment, higher highs and higher lows.
Q3: Hi Steve - Due to market conditions, your guidance has been to hold off on starting new wheels. You have recommended bear call spreads in the mean time. What would you recommend for someone to do in the short term to earn income if their brokerage is restricting them from trading spreads, due to lack of experience in trading options?
A3: In the meantime, I recommend watching the all the main video content in our library to familiarize yourself with options trading. I also recommend practicing setting up bear call spreads in a paper trading account. This will allow you to see how the option value contracts move over time.
Q4. I own 100 shares of a stock that I bought at $44 per share and now the stock is worth $32 per share? Should I sell a covered call? and if so what strike price should I sell it for?
A4: What you do with your portfolio is completely up to you. If you would like to sell a covered call and you are okay with letting your shares go at $44 you can consider selling a covered call at the $44 strike, 4-8 weeks out. Remember that if you sell a covered call, your intention is to let go of your shares at the strike price you choose.
Q5. I'm thinking of buying shares of Google. Should I buy it now or wait a little bit?
A5: We are personally not recommending to buy any shares, yet. We want to wait for positive market sentiment, a trend reversal and higher highs and higher lows. However, what you do with your portfolio is completely up to you.
📌Submit Your Questions 🙋♂️🙋♀️
Have any other questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Dashboard. You might find what you're looking for. 😊
If you do have questions, make sure to ask them on our Dashboard, rather than asking us via email. We also encourage you to watch all of the core video content and some of the past archived videos, read past Membership Positions, and take all the quizzes before sending us your questions.
📌Join Our Discord 💬
Investing, trading, and building wealth was a lonely journey for me. This is why my team and I created a Discord group for you and the other members to shares ideas and support one another. You don't have to go through it alone as we're all here to help. 😉
Make sure to check it out on the bottom of your "Dashboard" and follow the instructions on how to sign up. Coming from a teacher's perspective, I believe it's important to engage in conversations with people who are also seeking to reach financial freedom.
Remember that we are a community of wealth builders at all different levels, so be positive, kind, and helpful to others, so we can help each other get to financial freedom much faster.
📌Steve's Recommendations 💡
I'm going to pin this here since many people ask similar questions each week about why I'm hesitant with starting new positions. Until I see any trend changes or updates with the news, we will pivot our strategies. In the meantime...
I don't recommend starting any new wheel positions (selling new covered calls or cash-secured puts) until there is a trend reversal and positive market sentiment.
Through it may not matter in a long-term lens, I don't recommend buying any shares or ETFs for the long-term at the moment.
Continue to buy to close past covered call positions once they shrink down to around 50-80% of their values, and roll out to a further date to collect more premium. This is a great environment to sell short-term options as IV is high due to all the fear. I favor 30 to 45 day expirations. It's a boring and repetitive process, but it's like collecting "free money" or another "dividend" while 95% of other retail investors are panicking.
If you have more than 100 shares of long-term positions, you can consider selling 30 to 45 day covered calls at around a delta 0.10 to bring in cash.
Continue to deposit money into your account.
Continue to set up bear call spreads.
Let your capital stay as cash so we can have plenty of ammo when the bull market returns. And trust me, when it does, it will be glorious since we will be prepared.
Stay positive and patient. I know it's easier said than done, but keep in mind that you have knowledge on how to still generate income during a downward market. This is something that more than 95% of retail investors don't know how to do!
Have a wonderful weekend! 🙂
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.