Sep 24, 20225 min
Hey Wealth Builders!
The S&P500 had another sell-off on Wednesday, following the news of a third straight three-quarters of a percentage point interest rate increase by the Federal Reserve. Fed chair, Jerome Powell, strongly suggested that more big rate hikes are coming as the central bank continues to fight inflation.
What The Heck Is Happening? 📈
SPY
Ah yes, as expected, SPY hit its $361 support on Friday and had a slight bounce off of it. I'm still pausing on investing until we see some higher highs and higher lows. I would also feel more confident with investing if I can see the major index break and stay above the yellow resistance line.
If we break below the $361 level next week, I'm going to add more bear call spreads to my positions to collect some cash as we go down. I'll have more on this in the Premium Membership Position. However, if we do not break down, there may be a chance for a temporary bear market rally. The RSI (relative strength index) currently sits around 30, which may signal that we are in a bit of oversold territory. And also with this huge drop we had in a short time frame, the markets tend to temporarily pop back up like a rubber band being stretched and released.
Remember that this is a broad-base sell-off, meaning that algorithms were triggered to selling 95%+ of all the components in the S&P500. Usually when institutions sell off their shares, it triggers other institutions to do the same. In a way, it's similar to "monkey see, monkey do," where sell-offs create a domino effect to even more sell-offs.
Keep in mind that many institutions borrow money to trade. That's right! They also use margin too. Because of the sell-offs, many algorithms have a higher probability to want to cut their losses, so they don't get margin called.
Is there anything wrong with the majority of the companies we hold? No. I still believe we hold many great companies with strong fundamentals that are generating increasing top-line revenue.
To the seasoned investor, you already know this. However, to the new investor who may have only been investing for 1-2 years, this may be scary to you. The goal right now is to be patient and calm. Ask yourself where you believe the stock market is going to be in the next 1-2 years. What about 5 years? Or 10 years?
When we invest, we look always look at the long-term perspective.
If we want to be successful in anything, we must learn to endure short-term pain and make short-term sacrifices to make long-term achievements.
If you are new to investing, I would be more of an observer right now. I know you may be excited to buy 20,000 shares all at once, but believe me, you may not have the stomach for this type of volatility. You can also consider paper trading and investing right now. I personally like TD Ameritrade's Think or Swim platform, but you can use whatever brokerage you are comfortable with.
Right now, I prefer to do the following given these market conditions:
Keep depositing money into your account.
If you feel comfortable, you can sell far OTM covered calls on the shares you already have. Do not sell at strikes you are not comfortable with.
I would not start any new wheel trades at the moment. I prefer to be more conservative.
If you feel comfortable, you can set up bear call spreads.
Let your weekly/monthly contributions, premiums, and dividends sit as cash for now. I want to make sure you're in an established position, so when the bull market comes back, you'll have a lot of capital to deploy.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. I'm new to the program and I want to start investing. What do I do first?
A1: You can do whatever you feel more comfortable with in your account. However, I would wait until there is more stability in the markets and the sentiment to become more positive. If you really want to dip your toe in the markets, you can consider purchasing 1 or 2 shares of assets that track the S&P500, like SPY or VOO, and watch how the price action is for the upcoming weeks. I would also keep depositing money into your account
Q2. Hi, just got through the 1st half of the Level 1 lessons. I want to start selling covered calls but is there a guide on how long I should do this for before going through the 2nd half of Level 1 and getting into the Wheel Strategy? Is there something like a guide with action steps/rough timelines?
A2. During these market conditions, I recommend learning the entire Wheel Strategy and being more of an observer of the market. I would also learn Level 2 and 3 concepts to practice some strategies in a paper trading account.
Q3. I've been selling covered calls on the shares I already had from a long time ago and haven't started any new positions. With all the cash I have been saving up, do you still recommend just keeping it as cash? Is this a buying opportunity?
A3. I personally would keep it as cash for now until I see the markets break through resistance lines. Or, because you're a seasoned investor and can tolerate the market volatility, you could consider slowly adding some shares of S&P500 securities to average down your cost basis. In the end, do what you feel more comfortable with.
📌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.
Like what I've been saying for the past few weeks, I expect more volatility from now until the beginning of November. Let's see how the markets react once we get to October earnings and the mid-term elections. Stay calm and patient. 🙏
-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.